While many investors are focused in on the Microsoft-Nokia deal
talk, another huge buyout was announced in the broader telecom
space. This time, the parties involved were
in what is being described by many as the biggest wireless deal in
In the agreement, Verizon will spend almost $130 billion to buy out
Vodafone's 45% stake in the two companies' wireless joint venture.
It will allow Verizon to have total control over its huge wireless
business which has more than 100 million domestic subscribers, and
is a key part of the company's profits and product mix (see
the Complete Guide to Telecom ETFs
In the terms of the deal,
Vodafone will get $58.9 billion in cash, $60.2
billion in VZ stock
, and then $11 billion from smaller transactions in a deal that
looks to close next year in the first quarter. The move also pushed
Verizon to get a
huge $61 billion bridge loan
package, which will then be refinanced in just under a year's
time with $49 billion in corporate bonds and then $14 billion
in loans, so clearly Verizon will be taking on quite a bit of debt
for the deal.
It appears as though the company is looking to take advantage of
still historically low rates while they last, as benchmark
government debt is now within striking distance of the 3.0% mark.
This was unfathomable nearly six months ago, and undoubtedly the
team at Verizon
boosted its offer price
for the Vodafone business in order to avoid paying even more on its
corporate bonds for this huge deal.
At least initially, investors in VZ didn't seem to like the deal
too much. The stock was down roughly 2.6% for the session on volume
that was well above normal.
Meanwhile, the move could have a big impact on the broader telecom
industry, forcing some smaller players to act. It could also make
Verizon jettison some of its other businesses, so this could just
be the beginning of the shakeup in the telecom industry (See
3 Sector ETFs with Solid Yields
Below, we highlight three telecom ETFs that offer up the biggest
allocations to VZ. These ETFs could thus be on the move both this
week and in days ahead as this huge deal is digested by the
industry, and other competitors position themselves for this new
iShares U.S. Telecommunications ETF (
This ETF follows the Dow Jones US Telecommunications Index, holding
about two dozen stocks in its portfolio. Volume and assets under
management are solid for this fund, as roughly half a billion is
invested in the product, while the average daily volume is about
half a million shares.
In terms of holdings, AT&T (
) takes the top spot at 9.8%, but it is closely followed by VZ at
9% of the total. From a cap perspective, large caps take up roughly
40% of the total, though small caps do make up a similar allocation
IYZ was flat in Tuesday trading on elevated volume, while it is
down about 4.4% over the past one month time frame.
iShares Global Telecom ETF (
For a global look at the telecom industry, IXP is an interesting
choice. The ETF tracks the S&P Global 1200 Telecommunications
Index which holds about 35 securities in its basket from around the
The top holding is T at 15.7%, but the next two holdings are the
in-focus Vodafone (VOD) at 13.6% and Verizon at 11.7%. This gives
the product a large cap focus, while from a national perspective,
the U.S., the UK, and Japan take the top three spots (see
all the telecommunication ETFs here
IXP was also flat in Tuesday's trading session, though it did see a
burst in volume well above normal. The product has also struggled
lately though, losing roughly 2.8% in the past month.
Vanguard Telecommunication Services ETF (
For a cheap choice in the telecom space, investors have VOX which
charges just 14 basis points a year in fees. The product isn't the
most popular from a trading perspective, though it does have assets
under management of roughly half a billion dollars.
While all of the telecom ETFs appear to be subject to concentration
issues, it is especially true in VOX. Though the product holds 33
stocks in its basket, VZ and T both take up roughly 22.5% of the
assets, suggesting that these two firms drive the return of the
Thanks to this bigger allocation to VZ, VOX was down about half a
percent in Tuesday trading. The fund has also struggled lately,
losing about 5.2% in the past month.
The deal between Verizon and Vodafone looks to shake up the
wireless telecommunications industry, and it could be great for
both companies in the long term. However, it will certainly cost VZ
dearly, as a huge bond issuance and cash payment will be needed in
order to seal the deal (also read
3 Tech ETFs to Watch on Microsoft-Nokia Deal
Still, while investors may not be reacting favorably to the stock
dilution in the near term, the future could be bright for Verizon
given its total control of this huge business segment. As such,
this could definitely put both Verizon and the broader industry in
focus, suggesting investors should definitely keep an eye on the
telecom ETF space going forward.
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ISHARS-GLB TELE (IXP): ETF Research Reports
ISHARS-US TELE (IYZ): ETF Research Reports
AT&T INC (T): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis
VIPERS-TELE SVC (VOX): ETF Research Reports
VERIZON COMM (VZ): Free Stock Analysis Report
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