Verizon (VZ) Shares Down on Vodafone Deal

Shares of Verizon Communications Inc. (VZ) closed down -1.37 or -2.89 percent to $46.01 per share on Tuesday, after the telecommunications giant announced it had agreed to buy Vodafone Group Plc's (VOD) 45 percent stake in Verizon Wireless. The announcement of the $130 billion deal was not received well by stockholders of either company, with Vodafone Group stock also losing -1.05 or -1.1 percent to close at $32.01 per share.

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New York City based Verizon Communication is the result of the 1984 breakup of AT&T (T) and was originally Bell Atlantic, serving New Jersey and Virginia. In 1997, the company merged with another "Baby Bell," NYNEX. In 2000, the company merged with GTE and began using the Verizon name. Verizon Wireless is the largest mobile phone operator in the United States. The $130 billion deal in cash and stocks will allow Verizon to fully access profits from its wireless operations and effectively ends the 14 year relationship between Vodafone and Verizon. The agreement will allow the British group to return 71 percent of net proceeds totaling $84 billion, including all of the stock to shareholders. The terms of the agreement will give Vodafone $58.9 billion in cash, $60.2 billion in Verizon stock, plus another $11 billion from smaller deals. Vodafone's CEO, Vittorio Colao told reporters after the announcement that, "We think we have a balanced approach here," he continued, "We are reducing our debt level which will enable the company to be very robust and take opportunities if they arise." The two sides have been discussing the sale of the stock for some time, with a previous offer of $100 billion by Verizon; some analysts think that the sweetened bid came in due to possible rising interest rates. Verizon stock was downgraded by Moody's after the announcement, citing an increase in debt leverage from adding an additional $67 billion of new debt, bringing Verizon's total debt to $116 billion. The companies also agreed on a penalty in the event that either company pulls out of the deal. The company that terminates the transaction will be assessed a $1.55 billion breakup fee. The company terminating will have to pay the other party the fee within five days through a wire transfer, according to a regulatory filing made by Verizon. Verizon has had operational control over Verizon Wireless so the deal will not affect any of Verizon's 100 million customers. Now that Verizon will have full control and receive the entire amount of profits, the company stands to gain more flexibility in marketing its wireless internet and television services. Verizon's stock price has fallen since the announcement of the deal and despite the optimism the deal reflects on Verizon's wireless business, increasing competition from Sprint and other carriers could further pressure Verizon. Verizon stock is down from the low fifties, with the additional shares and increased debt load, the stock price could continue pressured in the near term. Other News About VZ Vodafone-Verizon Deal: What the Analysts Say Analysts opinions on the Verizon-Vodafone deal. Vodafone Deal To Sell Verizon Stake Could Boost UK Economy The significant amount of the transaction could benefit the UK. Other Stocks in the News Microsoft's Answer to Google Glass and Apple iWatch Microsoft is buying Nokia's handset assets. Ryanair Says Annual Profit May Be at Lower Forecast Range Carrier's income suffers from summer heat wave. Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Sep 4, 2013
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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