2014 was a busy year forVodafone(LSE: VOD). The company made several large acquisitions across Europe and finalised the sale of its US joint venture topeer Verizon.
But now, some City analysts are starting to become worried the companys prospects. Specifically, analysts are concerned that Vodafones size is holding the company back.
New rivals with wealthy backers are giving Vodafone a run for its money in the companys key South African and Indian markets. Meanwhile, consolidation within the European telecoms market is forcing the group to spend heavily, in order to keep ahead of its peers.
Needs to do a deal
As a result of these growing pressures, analysts at investment bankMerrill Lynchbelieve that Vodafone needs to make an offer to buy its European peerLiberty Globalin the next few months, and its pretty clear why.
In particular, Liberty has become one of Vodafones key competitors in the European market and, as the two companies fight over acquisitions, prices are being pushed higher. Removing Liberty would leave Vodafone to dominate the European market.
Additionally, Vodafone would be able to spend longer weighing up possible acquisition targets, without its hand being forced by Liberty.
Liberty is Europes largestcable company, and it also has operations in South America. These are two regions where Vodafone would love to increase its exposure.
Vodafone is already trying to improve its offering to customers within Europe through its Project Spring infrastructure project but where it lags peers is in the triple- and quad-play markets. For example, traditionally Vodafone is a mobile operator but customers are increasingly looking for companies that can offer bundled media services. Liberty is one such operator, and more than 40% of the groups customers are already on triple-play contracts, which bundle together cable television, internet and voice packages.
So, it would certainly make sense for Vodafone to try and buy out Liberty, as a deal would give Vodafones European presence a huge boost.
However, Vodafone is running out of time to make such a large acquisition. Analysts believe that Vodafone would have to offer somewhere in the region of $53bn to buy Liberty a huge sum.
And Vodafone could only afford to make such an offerwhile credit remains cheap. In other words, Vodafone wont be able to pounce on Liberty when interest rates start to rise.
Progress at home
Still, if Vodafone doesnt make a bid for Liberty, its not the end of the world. Thanks to the companys drive to modernise its European telecommunications network and capture more customers here in the UK, City analystsbelieve that Vodafones earnings are set to expand by 23% during 2017 as the companys investments start to pay off.
If these impressive growth forecasts have inspired you to take a closer look at Vodafone, then I strongly recommend that you do some additional research of your own, before making any trading decision.
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