The Verizon-Vodafone Affair Is Getting Complicated

After their $100 billion offer to buy out Vodafone (NASDAQ:VOD) was ignored, Verizon (NYSE:VZ) is looking for another way to get the UK wireless company to relinquish its coveted 45 percent share. The bid by Verizon, originally thought to be $30 billion off target, has not changed since it was reported earlier this week. After ruling out the possibility of a merger, the affair is getting complicated.

Verizon has reportedly tried going through analysts in an effort to put pressure on Vodafone, but investors remain skeptical this tactic will have any effect on the deal. For one thing, analysts continue valuing the company well over the $100 billion mark. So what would it take to make a deal?

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“I think $120 billion is the point where you think you’ve got a decent premium,” one major investor told Reuters. “I think that’s reasonable.” Unfortunately for Verizon, no one is calling Vodafone’s shares of its wireless division worth less–except its own representatives. While this problem might seem solvable over time, many suggest that Verizon has to take action in the near future.

Why the pressure on Verizon? Walt Piecyk, an analyst at BTIC LLC, agrees with many analysts that the convergence of very low interest rates, high Verizon stock price and the ability to borrow now makes time a factor. “Verizon might regret not taking advantage [of these factors] and getting a deal done this year,” Piecyk told Bloomberg. (He values the shares at $120 billion.) Vodafone is so reluctant to relinquish its stake in Verizon Wireless because its remaining assets leave the company exposed in Europe, where competition is fierce.

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Another element complicating the deal is the potential tax burden that would be owed by Vodafone. While Verizon attorneys suggest it would be as little as $5 billion, other estimates put the number at $25 billion. The huge margin between these two numbers is said to derive from the many assets within the Vodafone portfolio. Were the company to be hit with a tax bill between 10 and 20 billion dollars, there is no way the buyout would be profitable for shareholders. So both sides continue waiting for the other to blink.

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