Reports surfacing from London this morning suggest that Vodafone Group (VOD) is mulling over a bid for T-Mobile UK in hopes of creating a new UK mobile-phone giant.
Reportedly, T-Mobile has been put on the sales block by Deutsche Telekom (DT) with the Times of London reporting that DT has hired J.P. Morgan to shop the business. It is believed that T-Mobile is worth $4.11 billion to $5.6 billion. Supposedly, VOD is considering two options: an outright bid for the company or a joint venture.
T-Mobile UK is the country's fourth-largest cell provider and has roughly 15 percent of the total market. Combine this with VOD's 25 percent stake and the new company would be the largest provider in the country, jumping over O2 -- the current top dog with 27 percent of the market (thanks mainly to the fact that it is the exclusive carrier of Apple's iPhone in the UK).
Should this deal come to fruition, it could kick off the "long-predicted" consolidation that many think will take over the sector in the UK. The main reason is that the UK has more operators than any other large European market.
This deal could help VOD tap into the "lower-margin pre-paid market," which is often considered a less-valuable customer base. Even though the base is considered less valuable, I think it may be a good move. The pre-paid market could be big for the next few years while consumers ease their way back into the market.
Nevertheless, this deal may not make sense for VOD based on the stock's technical performance. The communications company has dropped significantly since the beginning of 2008. In fact, the last time the stock closed atop its 10-month trendline was February 2008. Since then, VOD has plunged from the $35 region to its current spot in the $20 region.
Watch for the $20 level to team up with this 10-month moving average to form a gruesome twosome of resistance for VOD. If the deal goes through or if it doesn't go through, this resistance is going to be the determining factor. It is going to take a great deal of good news to help VOD surge through this resistance and today's news isn't doing the trick in early trading.