Vodafone Group Plc (NASDAQ:VOD) is the second-largest wireless company in the world behind China Mobile and the largest carrier in terms of the number of countries served. With the company’s recent earnings release, all eyes continue to be on Vodafone’s 45% stake in Verizon Wireless, which is 55% owned by Verizon Communications Inc. (NYSE:VZ).
Deal unlikely
Earlier in late April, Verizon Communications was preparing a possible $100 billion bid for Verizon Wireless’ remaining stake. According to the latest comment from Vodafone Group Plc (NASDAQ:VOD), however, the deal appears to be unlikely for the next two years. Analysts at Bernstein commented that Vodafone views Verizon Wireless as a more attractive asset than many of its European ones. While Verizon Communications may seek to withhold dividends in the near term, Vodafone does not consider it a real, sustainable threat as both companies rely on Verizon Wireless’ free cash flow.
Expansion continues
Despite declining revenue, the management continues to cut costs to achieve target earnings. The economy in Europe remains a challenge, but the outlook for newer markets in Africa, Asia and the Middle East remains bright. Vodafone Group Plc (NASDAQ:VOD) plans to retain the $3.19 billion dividend from Verizon Wireless this time to expand its network and spend on frequency auctions in growing markets such as India and South Africa. The company is also building a fast fiber network in Spain and Portugal while signing deals to share infrastructure with rivals in Germany and Spain.
On the positive end, by cracking the African model, Vodacom Group (65% owned by Vodafone), had seen full-year profit surged 23% as more customers bought smartphones. Vodacom is expected to expand into as many as three new countries by the end of next year.
Dividend
With its solid cash flow, Vodafone Group Plc (NASDAQ:VOD) increased its ordinary dividend by 7% for the full year. Moving forward, however, the company aims to maintain the ordinary dividend at current levels and commits continuously to the long-term investment needs of the business.
Bottom line
Although Vodafone is unlikely to sell its 45% stake in Verizon Wireless while its other assets in Europe continue to underperform, the $100 billion offer presents a great short-term deal for Vodafone Group Plc (NASDAQ:VOD) whose company cap is currently around $148 billion. Strategically, however, it is in Vodafone’s best interest to use the strong free cash flow from Verizon Wireless to fund its growth until European market recovers and newer market matures. As for the company’s investors, owning Vodafone is a safe investment choice as it has options to sell Verizon Wireless for a large premium or to expand continuously using Verizon’s cash flow.
Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends Vodafone.
The article Vodafone Wants Growth of More than $100 Billion originally appeared on Fool.com.
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