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Will Verizon Communications Honor Yahoo!, FleetMatics Deals by Issuing New Shares?

Will Verizon Honor Yahoo!, FleetMatics Deals by Issuing New Shares?
While Verizon’s management has been aggressive in terms of M&A activity, it worrisome cash position has led to higher concerns among the investors

The aggressive acquisition-related steps taken by Verizon Communications Inc.’s (NYSE:VZ) top management has turned the investors’ joy into nervousness. Yesterday, it announced the FleetMatics Group takeover, which came just a week after it disclosed the Yahoo deal. Although both deals are still subject to the regulatory approvals, VZ stock dipped 1.57% following the news.

Debt Situation

On July 26, Verizon posted mixed second quarter of fiscal 2016 (2QFY16) earnings results. Despite the fact that it missed the top-lines estimates, it managed to beat the Street’s forecasted net earnings by $24 million. However, a key concern that Business Finance News pointed out earlier as well was the weaker balance sheet.

As of latest quarterly financial report, the company has a debt obligation worth $176.72 billion. It maintains a debt-to-equity ratio of 4.8:1, which was reduced nearly 50% year-over-year (YoY). Nevertheless, it reflects a higher liability situation.

Equity Breakdown - Authorized and Issued Shares

The communication services provider is therefore in a highly-indebted position, which leaves it with the alternative of new share issuance. As per Verizon’s certificate of incorporation with the Securities and Exchange Commission (SEC), it is authorized to issue 6.5 billion shares in total

Of these, 6.25 billion shares are authorized as common stock, at a par value of $0.1 per share, whereas the remaining ones are allocated under Series Preferred Stock of par value of $0.1 apiece. Its current market float is 4.08 billion common shares, which leaves it with 2.17 billion shares to bank on.

The FleetMatics Group Acquisition

Yesterday, Verizon entered into a definitive merger agreement to take over FleetMatics Group PLC (NYSE:FLTX) for $2.4 billion in cash. The deal, which currently awaits approvals from the regulators and FleetMatics’ shareholders, is expected to be closed by this year’s last quarter.

This agreement comes just months after Verizon acquired Telogis Inc. Coupled with FleetMatics’ cloud-based software, Verizon has positioned itself as a prominent player in the telematics space.

The Yahoo Deal

On July 25, the telecommunication carrier had announced a $4.83-billion cash agreement with Yahoo! Inc. (NASDAQ:YHOO). As per the agreement details, the digital information discovery company’s operational assets, such as Tumblr, Yahoo News, Flickr, and Yahoo Sports, will become the part of Verizon.

Collaboration with Bharti Airtel Limited

The company is not only focused toward the mergers and acquisitions (M&As), but is also cashing business partnerships wherever it finds an opportunity. In this regard, it announced today a business alliance with Bharti Airtel Limited—the largest player in India’s telecommunications services industry. The joint venture (JV) will launch new points of presence (PoPs) in Mumbai, Bangalore, Chennai, and New Delhi, which will help Verizon bump up its investment in India.

In the announcement, chief technology officer of Digital Media Services Rob Peters stated: “We are expanding our content delivery network in strategic markets that our customers care about, and we have found a long-term partner in Airtel Business. […] The launch of these strategic PoPs marks the beginning of a strong partnership between Verizon and Airtel Business, and further cements our commitment to providing consumers in India, one of the fastest-growing markets for digital media consumption, with exceptional services and quality.”

Lowell C.McAdam’s Vision

CEO Lowell C. McAdam believes that Verizon’s core business remained its wireless network. However, he has made certain media investments recently, from which he does not expect any quick returns.

The executive brought the software platform closer to vehicles through the FleetMatics and Telogis acquisitions. While the former helps with small and medium businesses, and added more than 37,000 customers and 737,000 subscribers to Verizon’s connected car platform, the latter is focused on enterprise customers.

Deutsche Bank’s Remarks

The research firm showed its concern toward Verizon’s recent M&A deals. It sees greater execution risk at this point, simply due to the company’s lack of track record and historical presence in the relevant markets.

However, the sell-side firm believes that if there is proper execution, the recent $1.8-billion XO Communications takeover will gear Verizon toward 5G, while the Telogis and Fleetmatics deals will aid it in improving capabilities in Telematics and mobile workforce management solutions.

In addition to this, Verizon had divested assets worth $15 billion so far; these comprise tower sale to American Tower Corp. (AMT) and Wireline properties to Frontier Communications Corp. (FTR). Furthermore, it had also purchased $10 billion of AWS-3 spectrum.

Verizon’s Stock Movement

VZ shares have been on a downward trajectory since yesterday; selling pressure was observed throughout the day once they reached a high of $55.82. The same trend continued today, as the stock touched a low of $53.87 during trading hours, and closed down 0.92% at $54.

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