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Is TPG Telecom Ltd going to buy Vodafone next?

Thankfully for its shareholders, the TPG Telecom Ltd (ASX: TPM) share price has bounced back from yesterday’s heavy decline with a 5% jump to $5.77 during trade today.

While the catalyst for this is likely to be a research note from UBS revealing that its analysts have slapped a buy rating and $6.70 price target on its shares, speculation that the telco giant could be interested in acquiring rival Vodafone could also be playing a role in today’s gain.

According to a report in Business Insider, Inabox chief executive Damian Kay believes that TPG Telecom’s decision to become Australia’s fourth mobile network could have a serious impact on Vodafone’s business.

While a lot of the focus has been on the impact the move will have on the Telstra Corporation Ltd (ASX: TLS) business, Kay thinks that Vodafone is the company with the most to lose.

So much so he stated that he wouldn’t be surprised to see Vodafone end up selling to TPG Telecom, even speculating that it may actually be all part of TPG’s plan.

What now?

An acquisition of Vodafone and its 5.6 million subscribers would certainly make a lot of sense at the right price.

Combined I think the two companies would create a real force in the industry and be a huge threat to Telstra and Optus.

But I wouldn’t necessarily invest in TPG purely on the back of this speculation. TPG has long been rumoured to be interested in acquiring Vodafone, but nothing ever eventuated.

I would, however, invest in TPG Telecom today because of its dirt cheap price and strong long-term growth prospects.

At under 15x trailing earnings, I believe its shares would be a great long-term buy and hold investment option.

Another reason I think TPG Telecom is a buy today is its dividend. Although it is by no means as generous as this high-yielding dividend share, I believe its trailing fully franked 2.7% dividend has significant room for growth over the next decade.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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