East Verizon Communications (NYSE: VZ) about to open its wallet for a massive new acquisition?
That was the tone that was heard in the stock market Wednesday, and on the potential news that the incumbent telecom operator might spend a tidy sum to strike a deal, investors dumped its shares. By late trading, Verizon’s stock was down nearly 4%, a more dramatic drop than the 0.4% decline in the stock. S&P 500 index to point.
A potential deal that could easily exceed $10 billion
The Wall Street Journal published a report today indicating that Verizon is in talks to acquire the broadband specialist Border Communications (NASDAQ: FYBR)Citing anonymous “people close to the matter,” the financial newspaper wrote that an announcement of an agreement could come as early as this week.
If such a purchase were to materialize, it would be substantial. Investors bid up Frontier’s stock sharply on news of the potential deal, pushing its market cap to more than $9.5 billion. That’s expensive, even for a behemoth company with persistently high market cap levels. free cash flow (FCF) like Verizon. The company, already heavily indebted, would almost certainly have to find outside sources of financing, as its cash and short-term investments totaled less than $3.8 billion at the end of June.
In considering buying Frontier, Verizon is likely aiming to be more competitive in the broadband segment. Providing mobile services isn’t exactly a growth industry these days, while many parts of the country are still underserved by high-speed Internet.
Easy integration?
While integrating two large companies is never a quick and easy task, Verizon and Frontier are relatively compatible. The latter’s broadband network, currently being upgraded to fiber optic technology from existing copper wiring, roughly complements Verizon’s Fios network.
Neither Verizon nor Frontier have yet officially commented on the matter. Newspaper article.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
Why Verizon Stock Crashed Wednesday was originally published by The Motley…
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