Is Verizon Communications (NYSE: VZ) about to open its wallet for a massive new acquisition?
That was the scuttlebutt on the stock market Wednesday, and on potential news that the incumbent telecom might spend a pretty penny for a deal, investors traded out of its shares. In late-session trading Verizon’s price was down by nearly 4%, a more dramatic slide than the 0.4% sag of the S&P 500 index at the point.
A potential deal that could easily top $10 billion
The Wall Street Journal published an article today stating that Verizon is far into discussions to acquire broadband internet specialist Frontier Communications (NASDAQ: FYBR). Citing unnamed “people familiar with the matter,” the financial newspaper wrote that an announcement of a deal could come as soon as this week.
If realized, such a purchase would be sizable. On news of the potential deal, investors bid up Frontier’s stock sharply, pushing its market cap to over $9.5 billion. That’s expensive even for a monster business with sustainably high levels of free cash flow (FCF) like Verizon. The already heavily indebted company would almost certainly have to find some outside sources of financing, as its cash and short-term investments totaled under $3.8 billion at the end of June.
In contemplating a Frontier buyout, it’s likely Verizon aims to be more competitive in the broadband segment. Mobile service providing isn’t exactly a hot growth area these days, while numerous regions of this country are still underserved by high-speed internet.
Easy integration?
While integrating two large enterprises is never a quick or easy task, Verizon and Frontier are relatively compatible. The latter’s broadband operation, currently being upgraded to fiber technology from legacy copper wiring, roughly complements Verizon’s Fios network.
Neither Verizon nor Frontier has yet officially commented on the Journal article.
Should you invest $1,000 in Verizon Communications right now?
Before you buy stock in Verizon Communications, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Verizon Communications wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $661,779!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 3, 2024
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 Was Wilting on Wednesday was originally published by The Motley Fool
