It makes no sense for Voda to give up its US ambitions

Elizabeth Fournier
NO wonder investors cheered Verizon Communications’ boss Lowell McAdam’s claim yesterday that he’d be up for buying out Vodafone’s stake in America’s Verizon Wireless.

Analysts are valuing the 45 per cent stake at around £50bn, and having waited years to take a dividend from the US tie-up shareholders will no doubt be hoping they can spy a payout on the horizon.

But can Vodafone live without the revenue – and dividend growth – that Verizon brings in? And does Verizon have the cash to make it an offer it can’t refuse?

The answer to both question is, at the moment, probably not.

A sale would definitely mean more certainty for investors. Though Voda made bumper dividends from its part of the business last year, passing £2bn onto shareholders, it wasn’t until 2011 that the tie-up – inked back in 2000 – paid out at all.

With dividend payments up for renegotiation every year there’s no guarantee that payouts that big will come around again, and Vodafone’s minority stake means it’s at the mercy of McAdam’s management team when it comes to strategy.

But Verizon Wireless’s growth to become the biggest mobile network in the US is an undisputed cash cow for its UK partner, contributing more than 50 per cent of earnings at the FTSE 100 firm. It would be a crying shame if another British firm gave up on its global ambitions in search of an easier life, and with Vodafone’s southern European operations struggling, exposure to the US market is an asset worth more in the long term.

Either way Verizon’s offer would have to be high, and it looks unlikely right now that McAdam has a sufficiently full war chest to tempt Vodafone execs into a complete sale.

Analysts have likened the special relationship between the transatlantic telecoms giants to a soap opera, and the latest twist seems to fit the story.

Rumours of a buy out have been rumbling on for years and McAdam’s interview – delivered on the sidelines of a Las Vegas trade event – smacks a little of showmanship. He may have kicked off an interesting new plot development, but investors will have to wait a few more episodes before this storyline is over.

How do you book a $2.6bn gain on a deal that fails half way through when a major investor pulls out?

HSBC might be about to show us all how, if rumours floating around yesterday that the buyer for its Chinese insurer Ping An might have lost the backing of one of its key lenders.

True or not, HSBC investors will be calmed by the fact that 20 per cent of the deal went through straight away in December, funded by up-front cash from the Thai buyer – with the remaining 80 per cent relying on the loan from China Development Bank that appears to be under threat.

Any hit is also tempered by the fact that HSBC had already allowed its stake in Ping An to wane (through non-participation in share sales) in the run-up to the sale, limiting losses it would incur.

With a deal locked in, the only thing to question here is the HSBC management’s judgement in striking a deal with what may turn out to be a less-than-reliable counterparty.

Elizabeth Fournier is News editor of City A.M. ej_fournier