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Why Vodafone Rejected Iliad’s Bid for Its Italian Unit

British multinational telecom provider Vodafone (VOD) has turned down an offer from its French counterpart Iliad to purchase its Italian business. Vodafone shares fell 1.48% on Thursday to close at $18.64. But the stock has gained more than 20% year-to-date.

Iliad teamed up with British private equity firm Apax Partners to make an offer of 11.25 billion euros for Vodafone Italy. They sought to purchase the business in its entirety for cash and had secured strong financial support from a top European bank.

Shareholders‘ Interests

Vodafone rejected the Iliad-Apax offer because it felt it was not in the best interest of its shareholders. The company went on to explain that it continues to pursue consolidation opportunities in its major European markets, including Italy. Further, Vodafone said it remains focused on delivering shareholder value through portfolio optimization and an organic growth strategy.

Premium Offer Rejected

Iliad defended its offer, describing it as a “very high premium” for Vodafone’s Italian unit. It said the offer was in the best interest of Vodafone shareholders and would have been a solution to Vodafone’s desire for consolidation. Iliad plans to pursue a standalone strategy in Italy now that Vodafone has rejected its bid.

Vodafone is among the highest yielding stocks in its sector, offering a dividend yield of 8.3% compared to the sector average of 0.69%.

Analysts’ Take

Bernstein analyst Stan Noel yesterday maintained a Buy on Vodafone with a price target of 160p. Noel’s price target suggests 15.57% upside potential.

Consensus among analysts is a Strong Buy based on 13 Buys. The average Vodafone price target of 170.75p implies 23.34% upside potential to current levels.

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