Vodafone's agreed deal to buy Germany's biggest cable company could prove the catalyst for it to cash in its stake in its US joint venture Verizon Wireless.
Vodafone is paying €7.7bn (£6.6bn) for Kabel Deutschland in its first move into consumer broadband and television, although a rival bid from US group Liberty Global for the German company could still emerge.
If the deal does go ahead, analysts at Deutsche Bank believe it could lead to a resolution of the situation between Vodafone and US partner Verizon. There has been much speculation about Verizon buying out Vodafone's stake although other options, including a bid for the UK group from Verizon, have also been suggested.
Deutsche Bank moved its recommendation on Vodafone from hold to buy with a 217p price target. The bank believes the German move could push Vodafone into cashing in the Verizon stake - despite uncertainty over the tax implications - to reduce debt and fund further deals. With US competition increasing, it believes it would be the right time for a disposal of the stake. The bank's analyst David Wright said:
Three events increase the likelihood of a deal: 1) Vodafone's proposed Kabel Deutschland acquisition increases [debt and] leaves Vodafone with little slack for unexpected developments, with spectrum
auctions and leaner Verizon Wireless dividends ahead;
2) And we believe Vodafone needs to do further deals; The announced Kabel Deutschland acquisition is ... an indication of strategic shift at Vodafone. We think further deals are necessary in Spain and Italy to reverse flagging performance;
3) US wireless is getting tougher with T-Mobile enjoying accelerating momentum and Sprint recapitalised. Cable-backed WiFi is also growing rapidly. Our view is that a Verizon Wireless deal would be the best option to crystalise valuation and preserve liquidity as Vodafone continues its European turnaround.
Our view is that Vodafone is very much in control of this situation with Verizon openly ambitious to do a deal, while AT&T is also rumored to be interested in European investment as a potential mega-merger partner.
The buy note has helped push Vodafone's shares 2.3p higher to 188.65p
