What Will Vodafone do with its Stake in Verizon?

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On Nov. 14, 2012, at a conference organized by Morgan Stanley in Barcelona, Vodafone (NASDAQ: VOD) CEO Vittorio Colao made it clear that his company is not ruling out an exit from the United States. This came a day after the company released its Q2 report, which showed that it suffered a 1.4% fall in group organic service revenue. This was mostly attributed to the decline in its business in southern Europe. The company also wrote down the value of its Spain and Italy business by $9.4 billion.

Vodafone owns around 45% of Verizon Wireless, while the remaining percentage goes to Verizon (NYSE: VZ). This situation has led to investors and shareholders asking the same question: why would Vodafone want to maintain ownership of an asset it does not control? There has even been a case in the past, where the two companies clashed over payment of dividends. According to Colao, “Verizon Wireless is in the biggest, most attractive market in the world, and it’s the leading company in terms of management and it is still going very well.”

It is well known that in this industry, Verizon's closest competitor is AT&T (NYSE: T), which is currently trading at around $34. Presently, AT&T has made its 4G LTE network available to an additional 23 markets, and the company did not waste time in providing a PR for each market. Although it is working towards providing LTE coverage for not less than 150 million American’s by the end of the year, the company still lags behind Verizon as far as provision of 4G network is concerned.

In another development, Research In Motion (NASDAQ: BBRY), which is currently trading at around $9.00, will start selling its first BlackBerry 10 smartphones on multiple continents in February, following the company’s launch event in January. Information has yet to emerge on the carriers that will support the devices and if any of those carriers will enjoy any exclusivity deals. For now, we are watching and waiting.

Vodafone has been confirmed to currently maintain a global strategy that involves divesting the company of minority stakes it holds in carriers, and Verizon is not an exception. Colao further stated that “the board formally twice a year, and perhaps even more, looks at the portfolio. We look at the pros and cons and we look at the situation and the board makes that decision.”

The company is doing all it can to make sure that those assets it has little or no control over are sold out, and this is aimed towards streamlining its portfolio, while at the same time, returning cash to those shareholders who are no longer confident in the company’s share price, considering the number of individual assets the company owns. With the Q2 report of Tuesday, it was determined that more than half of the adjusted operating profit of Vodafone came from the Verizon business. It has also, to a large extent, aided in the growth of the company, especially at a time when most European consumers are cutting back on mobile phones usage.

In comparing the Verizon business to the French SFR business, which in 2011 saw Vodafone selling the 44% stake it held to Vivendi, Colao said that the United States market is healthier than the French market, which is currently suffering from a price war. He reiterates that as the CEO of Vodafone, he is “the guardian of money from shareholders” and as such, it becomes his duty to make the right judgment. Presently, Vodafone is initiating a new offer, which it has tagged “Vodafone Red.” This offer allows users of the company’s service to make unlimited calls, send unlimited text messages, and also pay for different amounts of data and internet access.

This means that Vodafone customers could be paying less on voice calls and text messages. Colao expects that this offer will, in due time, pay off. With the cut-down on number of assets it has no control over, it would not be a surprise if Vodafone finally sells its stake in Verizon.

Chizy has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend AT&T;, Vodafone Group Plc (ADR), and Vodafone Group Plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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