It’s not often that Wall Street shrugs off what amounts to a 30 per cent price hike for an asset inside of four months.
But that is what happened to Verizon Communications when news broke that it is in talks to buy out Vodafone Group Plc’s 45 per cent stake in their US wireless venture for up to US$130 billion, up from the US$100 billion price range that it was considering back in April.
Verizon shares closed 2.7 per cent 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 US 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 per cent 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.