Analysis: Why Wall Street doesn't blink at extra $30 billion for Verizon Wireless

Thu Aug 29, 2013 7:37pm EDT
 
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By Sinead Carew

NEW YORK (Reuters) - It's not often that Wall Street shrugs off what amounts to a 30 percent price hike for an asset inside of four months.

But that is what happened to Verizon Communications Inc (VZ.N: Quote) when news broke that it is in talks to buy out Vodafone Group Plc's (VOD.L: Quote) 45 percent stake in their U.S. wireless venture for up to $130 billion, up from the $100 billion price range that it was considering back in April.

Verizon shares closed 2.7 percent higher on Thursday as investors took in stride the prospect of the company taking on tens of billions of dollars in debt to fund such a deal.

For years, Verizon has made no secret of its ambitions to own all of Verizon Wireless - the top U.S. mobile service provider - because it has the best customer growth rate and profitability of any telecom company in the country. But concern around overpaying for an asset that it already controls has always gotten in the way.

Analysts saw three big motivating factors to support a deal now: rising interest rates, rapidly intensifying competition and a 12 percent drop in Verizon's shares since April.

If these trends continue, and analysts expect they will, a deal gets that much more expensive for Verizon to pull off.

"With interest rates rising, Verizon and Vodafone are cognizant of the fact that they have a narrow window to get this deal done," said New Street analyst Jonathan Chaplin.

Vodafone has confirmed it is in talks with Verizon but declined to give details. Verizon declined to comment.   Continued...

 
A Verizon wireless store is shown in Del Mar, California June 6, 2013. REUTERS/Mike Blake