Shares in Vodafone shed 1.9 percent, alone taking 6 points off theFTSE 100, after broker Bernstein cuts its rating on the mobile telecomsfirm to "underperform" from "marketperform", traders say, following recent talkit was considering a bid for Germany's Kabel Deutschland.
The deal speculation follows dramatic changes elsewhere in the Europeantelecoms sector over the last year, and is one of two possible structuralchanges at the company flagged by Bernstein, both of which it says are costly.
"Vodafone's rapidly narrowing solution set is growing more expensive andrisky to shareholders and it can choose structural decline mitigated by dramaticcost cutting and some increased spend, or it can try to buy its way out of theproblem."
Bernstein values both options at 135-140 pence and adds with no structuralchange it expects Vodafone's European assets to shrink by 23 percent over thenext 3 years.
"If Vodafone chooses not to buy wireline assets we think it will not sellVerizon Wireless (VZW) -- it's joint U.S. venture with Verizon, whichcontributes a healthy dividend ... If Vodafone does buy some wireline assets itrisks becoming a forced seller of VZW or if they don't sell investors willrightly discount VZW within Vodafone as they wait for Vodafone to eventuallyfinish their wireline footprint at a much higher price," it says.
Volume is heavy in early deals, at 29 percent of the stock's 90-day dailyaverage against 9 percent for the broader FTSE 100.
Reuters messaging rm://david.brett.thomsonreuters.com@reuters.net
Vodafone (VOD)