Verizon Communications Inc (VZ): Verizon overpaid for Vodafones 45% stake - wealth destruction for existing shareholders Still trying to understand why Verizon decided to take the remaining 45% interest from Vodafone for an inflated $130 billion purchase price. Before the transaction (55% wireless stake), Verizon Communications Inc was worth approximately $180 billion. At this price tag, VZ shareholders had the following ownership: Wireless: 55% controlling interest (55% of total revenues of $59.9 billion for nine months ended Sep 30, 2013) Wireline (with Fios): 100% interest (total revenues of $29.4 billion for the same time period). Paying $130 billion for 45% minority interest implies that its existing 55% controlling interest is/was worth ~$160 billion and its 100% Wireline interest worth only ($180 billion - $160 billion), $20 billion. There are only two scenarios implied by this math and both are bad for existing shareholders: Verizon management definitely overpaid for the 45% stake based on enterprise value prior to purchasing the interest from Vodafone; or The Wireline business with expanding Fios division is only worth $20 billion. Then why spend so much money and management effort on expanding and building out fiber to the home network. VZ management would have created more shareholder value by announcing it plans to purchase $130 billion in stock over the next five years instead of paying the same amount for 45% interest. VZ shares are likely to stay around this level or come under pressure as the market absorbs the equity sales from its European institutional owners who aren’t likely allowed to own positions in US companies. Is my math wrong or does this deal not make sense at all? alphapitch/companies/VZ
Posted on: Tue, 04 Mar 2014 22:34:01 +0000