Verizon Communications Inc.
) has finally won the U.S. Federal Communications Commission
(FCC) approval for its $130 billion deal to buy a 45% stake in
its wireless venture, currently owned by
Vodafone Group plc
). Both the companies have been mulling over this deal over a
long time and news surfaced early this year about Verizon
planning a possible buyout of its remaining stake of the wireless
For Verizon, the total buyout of its wireless business would
mean saving a substantial amount of the payment that slips to
Vodafone's pocket. Verizon Wireless, with operating income over
$21 billion not only remains a key driver of Verizon
Communications' earnings, but also provides a competitive edge
over big names like
) and the rapidly growing
This deal is touted as one of the biggest in the telecom space
after Vodafone's acquisition of Germany's Mannesmann AG in 2000
(for approximately $142 billion) and Time Warner Inc.'s merger
with AOL (for $124 billion) in 2001. We believe the complete
takeover of its wireless business would translate into greater
synergies for Verizon, which already holds a significant place in
the U.S. wireless market.
However, the eventual effect of this deal on Verizon's
investors is uncertain. Verizon shareholders are eyeing the
dividend that is currently being remitted to Vodafone. But
questions arise on whether the saved dividend payment to Vodafone
will compensate for the debt borne by the company for carrying
out the transaction, or whether the deal will leave a neutral
impact on its investors in case it looks for possible solutions
to maintain its status quo in terms of dividend payout.
Moreover, the deal's impact on Verizon's margin expansion
after borrowing for the transaction is also crucial to its
Verizon currently has a Zacks Rank #3 (Hold).
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VERIZON COMM (VZ): Free Stock Analysis Report
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