Should you buy Vodafone stock amid M&A talk?

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Vodafone (LON: VOD) share price made a strong comeback as the market reflected on the blockbuster merger proposal by the firm. The stock rose by more than 3% on Tuesday and reached a high of 108p. This price was about 7.2% above the lowest level this month.

Vodafone and Three merger

Vodafone is one of the biggest technologies and communication companies in the world. It has operations in key countries like the UK, Germany, and India. 

Like other telecommunication companies like BT Group, Vodafone has been under intense pressure in the past few months. There are concerns that its business is slowing down as inflation bites. Also, there are concerns about the falling local currencies like the British pound, euro, and Kenya Shilling.

In my last article on Vodafone, I wrote that Xavier Niel, a French billionaire had taken a large stake in the company. This followed another big French investor in UK telecoms after Patrick Drahi became the biggest shareholder in the BT Group.

And early this year, activist investor Cevian announced that it had acquired a stake in the company and sought sweeping overhaul. 

It now seems like the management has started focusing on these actions. This week, it was reported that Vodafone was in talks with Three to merge. If the deal goes through, it will create a large company with more than 27 million customers. 

Still, analysts are skeptical about whether the deal will go through. For one, Three is owned by CK Hutchison, a leading Hong Kong company. With tensions between China and western countries rising, the deal will likely not be approved under the National Security and Investment Act. 

To allay these fears, Vodafone has said it will retain a 51% stake in the business. But as we saw on the recent review of Drahi’s investment in the UK, it is possible for the government to block a minority stake.

Vodafone share price forecast

The daily chart shows that the VOD stock price has been in a strong bearish trend in the past few months. As it crashed, it managed to move below the important support level at 115p, which was the lowest level on May 17.

The stock has moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved above the oversold level. In my view, I believe that this rebound is not sustainable, meaning that the stock could soon drop below 100p again.

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