Verizon Communications Inc. (VZ), Vodafone Group Plc (ADR) (VOD): Two Buyout Deals That Would Shake Up the Telecom Industry

A coming dividend from Verizon Wireless would certainly boost the share prices of both Verizon Communications Inc. (NYSE:VZ) and Vodafone Group Plc (ADR) (NASDAQ:VOD) in the near term. Vodafone is trading at $30.20 per share with a total market cap of $148.5 billion. The market values the company at around 8.9 times EV/EBITDA. Verizon, at $52 per share, is worth around $148.9 billion. It has a cheaper EV multiple of 6.3.

Sprint Nextel Corporation (NYSE:S) – the target of the buyout war

One of their peers, Sprint Nextel Corporation (NYSE:S) derived most of its revenue, around 91.5% of total revenue, from the Wireless segment. It is trading at $7.40 per share with a total market cap of $22.3 billion. The market values the company at around 7.3 times EV/EBITDA.

Sprint Nextel Corporation (NYSE:S) has been the target of the buyout war between DISH Network Corp (NASDAQ:DISH) and Softbank Corp (USA) (OTCMKTS:SFTBF). While Softbank Corp (USA) (OTCMKTS:SFTBF) offered about $20.1 billion for 70% of Sprint Nextel, DISH’s offer came in at $25.5 billion for the total company. With DISH Network Corp (NASDAQ:DISH)’s offer, Sprint Nextel Corporation (NYSE:S)’s shareholders could get $4.76 per share in cash, 18% higher than a $4.03 in cash portion in the Softbank Corp (USA) (OTCMKTS:SFTBF)’s offer. Moreover, they could also possess 32% of the combined company.

Indeed, DISH Network Corp (NASDAQ:DISH) could represent more synergy than Softbank, with the cross selling opportunity to 63 million retail subscribers of both Sprint Nextel Corporation (NYSE:S) and DISH Network Corp (NASDAQ:DISH). The value proposition would be increased due to lower acquisition cost and lower churn. However, what makes investors worried is the highly leveraged financial structure of the combined company, with $35.3 billion in debt. This $35.3 billion debt level does not include the $9 billion debt financing for the deal.

My Foolish take

There would be a lot of shakeup in the telecom industry with the Verizon Wireless and the Sprint Nextel Corporation (NYSE:S) buyout offers. I am quite bullish about Vodafone Group Plc (ADR) (NASDAQ:VOD) at its current trading price. If Verizon Wireless is valued at $130 billion, investors could have to pay only around $20 billion for the rest of the Vodafone business.

The article 2 Buyout Deals That Would Shake Up the Telecom Industry originally appeared on Fool.com is written by Anh HOANG.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Vodafone. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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