The wireless leader
Verizon Communications Inc.
) plans to acquire
Hughes Telematics Inc.
) for $612 million in cash or $12 per share. The purchase price is
at a massive premium to Hughes' closing price of $4.35.
The proposed acquisition will expand Verizon's presence in the
automotive and fleet telematics as well as machine-to-machine (M2M)
service applications. This strategic move would boost revenues of
the company's enterprise business, and will give it a competitive
advantage over major rivals like
Sprint Nextel Corp.
Notably, the transaction will allow Verizon to provide wireless
connectivity to cars and trucks. Verizon Wireless, a joint venture
between Verizon and
Vodafone Group Plc
), currently provides wireless connectivity to
General Motors Co.
) OnStar service. The buyout of Hughes will help Verizon to extend
its hardware and services for Mercedes and Volkswagen cars in the
Hughes Telematics is a leader in the emerging connected services
market. It offers services to consumers, manufacturers, fleets and
dealers through two-way wireless connectivity.
As the wireless market has saturated and customers are quickly
shifting from landline to wireless connections, major telecom
operators are looking for new growth opportunities to broaden their
Apart from cloud computing, IPTV and video streamlining services
the carriers see telematics and M2M services applications as
promising growth areas. According to the recent report from ABI
Research, M2M connections would quadruple from 110 million in 2011
to 453 million in 2017.
Verizon expects the deal to close in the third quarter. Though
the boards of directors of both companies have sanctioned the
transaction, it is awaiting approval from the U.S. antitrust
As per the deal terms, Verizon would operate Hughes Telematics
as a subsidiary within its Enterprise Solutions group that will
remain in Atlanta. The company has also decided to retain Hughes'
management team to operate the business.
Verizon expects the telematics business to be accretive to
revenue in the long term.
We are maintaining our long-term Neutral recommendation on
Verizon. Currently, the stock retains the Zacks #3 (Hold) Rank for
the short term (1-3 months).
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