Broker snap: Verizon Wireless sale can't be ruled out at Vodafone, says Bernstein

6th Mar 2013 14:59

UK telecoms group Vodafone was being lifted on Wednesday by speculation that a deal with American part-owner Verizon (VZ) is near at hand.Bloomberg reported the day before that the two parties had held talks as recently as December and had discussed a possible merger. A buy-out or a partial sale of Vodafone's 45% stake in the Verizon Wireless (VZW) joint venture is also thought to be on the cards.As analysts at Bernstein Research explained, Vodafone's share price - up 6.77% at 180.02p in afternoon trade - is now pricing in a higher probability of a VZW deal than ever before.However, they believe that VZ would not want to merge with what are now relatively "low-quality European assets" - Bernstein estimates that if Vodafone does nothing to fix problems in Europe, its regional business will shrink earnings by 24% in three years.As for other options, the broker said that a hostile bid for Vodafone followed by break up would carry "huge execution risk". As such, an agreed deal is most likely both parties' preferred outcome.In a research note on Wednesday, Bernstein said: "The fundamental case for owning Vodafone's controlled businesses has materially weakened. Without a clearer long term strategy and with new doubts about the long term sustainability of the US dividend, outperformance of anything but a deep bear market seems unlikely unless there is a deal with VZ."We think a sale of Vodafone's stake in VZW is unlikely in the near term, but it can never be completely ruled out."BC