I find the story of Vodafone‘s (LSE: VOD) (NASDAQ: VOD.US) strategic transformation fascinating. Just a year ago I considered this telecoms company a slow-growth telecoms utility. But, step by step, it is turning from a company that was in its autumn to one that is in its spring. And the firm has turned into a very good investment.
The masterstroke was to sell its part ownership of the US company Verizon Wireless. In an instant, a huge amount of value in the company was unlocked. Then by investing much of these proceeds in buying high-growth broadcasting and telecoms assets around the globe, this is now a company that has got businesses in the burgeoning industries of pay-TV and broadband.
Telecoms is now all about synergy
If you tie these assets in with your current mobile and fixed-line telecoms companies, you gain synergies, build an unbeatable customer offer, and release even more value. Suddenly Vodafone can offer market-leading bundles of TV, broadband and telecoms services. Businesses are rapidly realising that if you combine the worlds of telecoms and broadcasting, the whole is considerably greater than the sum of its parts.
So far Vodafone has bought the leading European pay-tv companies Kabel Deutschland and Ono. But Vodafone still has plenty of cash to spend. So who will Vodafone buy next?
There has been much talk of Vodafone buying one of the industry giants, such as BSkyB or BT. Although the idea is attractive, I think such a mammoth merger is unlikely. Both companies are already highly rated, and I think would be too expensive to release significant value.
Looking beyond the obvious
Much more likely are purchases of smaller companies with strategically significant positions. In Portugal the leading pay-tv companies are Portugal Telecom and Zon Multimedia. Either of these companies would add to Vodafone’s strengths on the Iberian peninsula.
Where else could Vodafone invest? Well, it also has a substantial business in the Netherlands. The leading satellite TV company in the Netherlands, CanalDigitaal, might prove an interesting acquisition.
Plus I suspect Vodafone may also look further afield, to emerging markets such as Turkey and India. The pay-tv market in these countries is still developing, so Vodafone could look to buy current companies, or perhaps invest in its own broadcasting venture. The long-term rewards of investing in pay-tv in these fast-growing markets could be immense.
Of course, this is all pure speculation, but I think that Vodafone’s acquisition strategy will push its share price higher. I still rate the company a buy.