Verizon Closes Terremark Deal - Analyst Blog
April 12 2011 - 8:15AM
Zacks
Verizon Communications (VZ) has completed its
pending $1.4 billion acquisition of Terremark Worldwide
Inc. (TMRK), an
information technology (IT) service company. The acquisition gives
the second largest U.S. phone company a 96.6% stake in Terremark.
It also makes Verizon a cloud service provider.
The Verizon-Terremark deal was announced back in January through
a tender offer. In early April, Verizon concluded its tender offer
for $1.1 billion by purchasing 59.8 million Terremark shares for
$19 per share in cash. The remaining shares, which were not
tendered, were converted into cash for $19 per share. Now,
Terremark will operate as a wholly owned subsidiary of Verizon.
Verizon has positioned itself for growth in cloud services over
the year. The company seeks to expand its business to offset
declining revenues from traditional fixed lines. The company
reported weak revenues from its wireline business in fourth quarter
2010 due to continued declines across global wholesale and
enterprise businesses.
Telecommunication carriers are rapidly entering the cloud
computing business due to increased competition and changing
consumer habits. This will help operators to differentiate their
products and services and pave the way for strategic alliances
between telecom and IT companies. Telecom operators will be able to
provide competitive offerings with bundled services.
The transaction with Terremark supports Verizon growth
initiative in remote or cloud computing, an area where it has been
lagging competitors like AT&T Inc. (T). The
acquisition provides a combination of cloud, colocation and managed
hosted services to Verizon.
We believe Verizon’s continued investments in its broadband
network,strong wireless and FiOS services, cloud computing
business, share gain in the retail post-paid market along with
increasing smartphones penetration and other data devices will make
the stock attractive for the long term.
Further, the fourth-generation Long-Term Evolution (4G LTE)
network and Apple Inc.’s (AAPL) iPhone sales will
boost the company’s future growth prospects. However, persistent
erosion in access lines, high promotional and restructuring
expenses, and intense competition from cable companies and other
alternative services providers may threaten the stock.
We are currently maintaining our long-term Neutral rating on
Verizon with the Zacks #3 (Hold) Rank.
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