Should You Invest in Either Verizon Merger? - Cabot Wealth Network

Should You Invest in Either Verizon Merger?

Though it’s not yet clear how many there will be, a Verizon (VZ) merger is imminent. The telecommunications giant is in varying stages of two potential acquisitions: Yahoo (YHOO) and Charter Communications (CHTR).

Verizon’s deal with Yahoo was all but done until it hit a snag. The two sides agreed on a $4.8 billion buyout last July, but two data breaches affecting 1.5 billion Yahoo users have put the deal on hold, at least temporarily.

Now there are rumors of another Verizon merger, this time involving Charter, the second-largest cable company in America. Last year, Charter bought out Time Warner Cable, giving it 17 million TV customers and 21 million internet subscribers. Its Time Warner acquisition apparently made Charter a more attractive takeover target to an even bigger fish like Verizon.

Neither Verizon nor Charter has commented on the rumored deal, which would in essence create a super-telecommunications company, combining Charter’s 38 million customers with Verizon’s 125.6 million (114 million cellphone subscribers, 7 million internet subscribers, 4.6 million TV customers). If true, it would create a television-and-internet entity that would surpass Comcast (CMCSA) as the largest in the industry.

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But I’m getting ahead of myself. Right now, the Verizon-Charter deal is just a rumor.

The Verizon-Yahoo deal is more concrete—it’s essentially a done deal, but one that hasn’t been signed yet due to recent complications. Verizon CFO Matt Ellis has openly glowed about the Yahoo deal, saying it “would further increase our opportunity to scale in the digital media space, with its one billion-plus monthly average unique viewers.” In the next breath, however, Ellis said that Verizon is still assessing Yahoo’s data breaches and has “not reached any final conclusions yet.”

Verizon stock got a nice bump when the Yahoo deal was first announced, touching as high as 56 in July. But it subsequently plummeted for four straight months, finding bottom at 46 in mid-November. VZ made a huge recovery in late November and December to claw its way back to 54, but now it’s nose-diving again, dipping back below 50.

Going back further, Verizon stock is down 1% in the last year (see one-year chart below), and up a mere 6.9% over the last two years—roughly half the return of the S&P 500 during that time. There have been plenty of ups and downs along the way. In the aggregate, though, VZ hasn’t budged much these last couple of years.

Could a Verizon merger change the fortunes for VZ stock?

So while either Verizon merger could be a game changer for the company, neither has moved the needle yet for the stock. If and when the Yahoo deal gets finalized, that could change. And certainly, if Verizon pulls off both the Yahoo deal and the Charter acquisition, that would grab Wall Street’s attention. Until that happens, though, I wouldn’t invest in VZ stock based on rumors.

Chris Preston

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