There is nothing like the rumor of a monster deal to enliven the dog days of summer.FT Alphaville reports this morning that UK cell phone giant Vodafone may be considering a $160 billion bid for US fixed-line and cell phone giant Verizon. Apparently it's all very early days yet, and nothing may yet come to fruition, but it does make me want to add an extra shot of expresso to my morning latte.
Alphaville quotes "well placed financiers" who reveal that deal structures Vodafone has contemplated include potentially spinning off Verizon's fixed-line business to private equity, issuing tracking stock in Vodafone to US investors to fund the takeover, and gleefully "flummoxing critics" by floating provocative rumors of mega-deals in the UK financial press. The numbers involved, at the top end, would indeed be staggering. A merged entity is posited by Alphaville to have a market capitalization of around $300 billion, and a PE-financed spinoff of the fixed-line hamster and baling wire business would weigh in at around $90 billion, of which $75 billion would need to be financed by debt. If true, I guess it will be easier to get dinner reservations at East Hampton hotspots over the next several weeks, and tanker trucks full of midnight oil should be expected to clog the streets of the financial districts in both London and New York.
Given what I know of such deals—and past experience—this story itself is part of a carefully orchestrated plan by Vodafone's bankers to test equity and credit markets for their receptivity to such a deal. The sheer magnitude of such a transaction, and the vast number of moving parts any such deal has, is the clearest illustration of why investment bankers will not disappear from the markets anytime soon. No in-house corporate M&A department or individual private equity team—no matter how smart—can possibly weigh its alternatives in an sensible manner without the market intelligence i-bankers provide. After all, a deal like this tests the art of what is possible—at least from a funding perspective—and only those investment banks poised precariously on the pointy fence separating the Buy Side of the markets from the Sell Side can possibly collect enough information from the potential buyers of deal paper to tell Vodafone what is even within reason. Of course, as part of their information collection, the bankers also spend a lot of time and energy persuading the buy side that what they initially think is impossible is in fact the most reasonable thing in the world (and with no covenants, either).
This also explains why investment banks are gleefully flogging the idea that "sovereign wealth funds," or currency reserves held by nation states after they have budgeted for their weekly purchases of guns and butter, could comprise the next wave of liquidity in the global markets. Alphaville reports in a separate post today that Morgan Stanley's currency strategist is estimating that a wall of money in the neighborhood of $2.5 to $3 trillion could be invested by newly risk-seeking governments in something other than US Treasury bonds. Whether it comes to market in time to fund the Vodafone-Verizon deal is anybody's guess.
Who will win this titanic smack down between the global tsunami of money and the ravening maw of merger-frenzied buyers? I don't know, but I am betting against the naked girl just out for a swim.
© 2007 The Epicurean Dealmaker. All rights reserved.
