A Big Purchase Could be a Catalyst for Verizon Communications Inc. (VZ): Vodafone Group Plc (ADR) (VOD), AT&T Inc. (T)

What isn’t as clear is the motivation for Vodafone Group Plc (ADR) (NASDAQ:VOD). About 70% of Vodafone’s earnings come from Verizon Wireless. That number was only 40% a couple years ago.  Clearly, Vodafone relies heavily on the healthy cash flows it receives from its stake in Verizon Wireless. Vodafone is heavily exposed to Europe and its calamitous economic climate. Vodafone derives almost a quarter of its earnings from Europe, with Spain and Italy constituting a major portion.

I would see this potential deal as a great one for Verizon Communications Inc. (NYSE:VZ), but not so for Vodafone.  Verizon securing full control of its Wireless segment would result in increased cash flows and further efficiency realized through synergies.

There exists the possibility that Verizon could outright purchase Vodafone. But that doesn’t seem very likely, considering the fact that Verizon probably doesn’t want Vodafone’s struggling European assets. Outside of a full takeover of Vodafone Group Plc (ADR) (NASDAQ:VOD) by Verizon, I’m not sure how selling a very profitable stake helps Vodafone or its shareholders.

The article A Big Purchase Could be a Catalyst for This Telecom Stock originally appeared on Fool.com and is written by Robert Ciura.

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