James Dennin, Kapitall: Verizon has split from its partner Vodafone, consolidating its control of the global wireless business. So why are shares in both companies going down?
In one of the largest corporate break-ups in history, American communications giant Verizon (VZ) is buying out it's former partner Vodafone, to further consolidate its wireless business. Verizon is spending $130 billion in the takeover, a huge price that almost surpasses their market capitalization, and indicates the firm's resounding faith in the growth prospects of the American wireless market. Wireless accounted for 2/3 of Verizon's profits last year, even while splitting the revenues with Vodafone (VOD). The new deal will give Verizon, already the largest data-provider in the US, a market share that detractors are saying increasingly resembles a monopoly.
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Which begs the question: why are shares in both companies down, despite finally extricating themselves from a partnership which according to Forbes, was the third largest merger in history? For one, neither Verizon nor Vodafone's stock has kept pace with growth over the past year. Whereas the S&P 500 gained over 16% in the last year, Verizon's shares have risen only 6%. This comes amid an increasingly competitive wireless market, as more and more providers vie for fewer and fewer new subscribers. Most of the consumers buying wireless service in the US already have it. That makes growing difficult.Vodafone is expressing optimism about the deal and the massive influx of cash which it plans to reinvest in its European businesses. It also plans to use part of the $130 billion to consolidate its debt burden, and return some money to investors, who haven't seen much revenue from the already depressed stock. However, Vodafone's shares are still down for the day, indicating that the company's British shareholders are less-than-enthused about their new stake in American wireless. With Verizon's stock price down over 3% nearing the market's close, investors seem to be united their skepticism of the multi-billion dollar deal. Click on the interactive chart to see analyst ratings over time. Dig Deeper: Compare analyst ratings to annual returns for stocks mentioned.