Why Did Verizon Shell Out Over $100 Billion To, Essentially, Purchase Itself?
On a day the tech industry saw Microsoft stump up $7 billion to purchase Nokia in a plan to challenge the iPhone, Verizon coughed up more than 18 times that amount in order to capitalize on, what the Wall Street Journal called, a "golden chance" to gain full control of the wireless company.
A whopping $130 billion was paid to Vodafone for their 45% stake in the largest cellphone company in the U.S., granting Verizon sole propriety of the venture. The twelve figure deal makes Verizon's purchase the second biggest acquisition (on earth, for anything, ever!) according to Dealogic, the financial service information provider.
“These assets position us for the rapidly increasing customer demand for video, machine to machine and big data,” said Lowell McAdam, Verizon chief executive. “We are confident of further growth in wireless and our business in its entirety.”
Though the acquisition itself may seem like a complicated matter (when you look at the logistics, details, and breakdown of where buyout money is coming from), the big picture behind the momentous deal is clear: Verizon feels as though demand in the wireless industry will increase immensely. In fact, the Wall Street Journal reports the company believes that, in the coming years, the average customer will be connected to three to five mobile devices.
With this growth in demand, and thus an increased need for products to push towards consumers, comes a higher chance to make profit and become the sole party to receive to said profit (as opposed to two entities in a partnership) puts Verizon in a much better position to reap a substantial reward.
Should the deal go south for Verizon, many might consider it a victory for Vodafone and a sign that this company was on the smarter side of the negotiation, selling a stake in a venture at the perfect time. But even if Verizon experiences nothing but profit from this point forward, experts assert that Vodafone still comes out a winner, simply because its newfound cash opens up many opportunities.
"Now Vodafone basically gets to go into Europe, which is arguable the largest economy in the world, armed with more firepower than any other competitor and focus on their home market and try and become the guerrilla in the room," said Bloomberg contibutor Scott Galloway. Meanwhile, Verizon gets to book all of those earnings and gets cash flow, so this arrangement feels like this can be a "win-win."
Ultimately, however, the results of this deal, pieced together by a series of meetings that took place all over the world -- from New York, to London, to Amsterdam -- might not be known for years to come. The shape and longevity of the mobile industry's trajectory will determine Verizon's fortunes from here on out.
For now, though, it looks like their hundred-billion dollar deal is a plus for all parties involved.
Top Photo Credit: Bloomberg/Bloomberg via Getty Images