With the European economy struggling to grow at all right now, its of little surprise that shares in Vodafone (LSE: VOD) (NASDAQ: VOD.US) have come under pressure. Indeed, over the last six months they have fallen by 6%, while the FTSE 100 is down 1.5% during the same time period.
The key reason for this is Vodafones vast exposure to Europe. This was exacerbated following the sale of Vodafones stake in Verizon Wireless, which operates in North America, and means that Vodafones success is very much intertwined with the fortunes of the European economy.
This may seem like a major negative right now, but it could be a reason why Vodafone becomes the subject of a takeover. Heres why.
Over the last couple of years, it has been rumoured that US telecoms operator AT&T is interested in buying some or all of Vodafone. Indeed, AT&T is struggling to deliver strong organic growth at present and is seeking to stimulate its bottom line via M&A activity. Since it already has a very dominant position in the US telecoms sector, further acquisitions there are unlikely to be approved by regulators. This leaves non-US acquisitions as a potential option for the company.
One stumbling block has been Vodafones stake in a joint venture with AT&Ts fierce rival, Verizon Communications. This was seen as a complication and, ultimately, may have prevented AT&T from taking a Vodafone bid seriously. However, now that Vodafone has sold its stake in Verizon Wireless, this potential problem has gone and the market now believes that Vodafone is a more realistic target for AT&T.
Of course, AT&T isnt the only company that has been linked with a purchase of Vodafone. A major attraction for many non-European companies is the chance to gain instant exposure, via Vodafone, to high-quality assets when they are trading at a significant discount to their intrinsic value. Although Europe may not feel like an attractive place to invest right now, for long-term investors it is gaining in appeal especially with a Central Bank that now seems willing to provide an ultra-loose monetary policy for as long as it takes to turn the economy around.
So, while Vodafones share price has disappointed in recent months, it would be of little surprise for takeover rumours to surface that could provide it with support. Furthermore, with shares in the company now being more attractively priced than ever, an actual bid would not be a major shock. Indeed, with Vodafone now being focused on Europe, it could be ripe for takeover for a non-European operator that wants to gain exposure to what seems to be the bargain basement of the world economy.
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