Verizon Communications Inc. (NYSE: VZ) last week saw its share price drop nearly 1.8% and retain its position as the worst-performing stock among the 30 equities included in the Dow Jones Industrial Average (DJIA). For the year to date, Verizon’s shares are down 14.13%.
The stock price did not move much for the first three days of the week, but it dipped sharply Thursday morning following the company’s announcement that it had agreed to pay $3.1 billion to acquire Straight Path Communications Inc. (NYSEMKT: STRP). Shares trailed down after the announcement.
Verizon had already warned in the previous week that it would not meet its schedule for raising its credit rating by 2018 or 2019. The warning followed a report from S&P Global Ratings that the company is battling in a mature and crowded U.S. wireless market.
Verizon is paying $184 a share for Straight Path, nearly double the offer for it made in early April by AT&T Inc. (NYSE: T) of $1.6 billion ($95.93 per share) in stock. The smaller company had accepted AT&T’s offer, only to have an unnamed competitor — now known to be Verizon — enter the bidding two weeks later.
Verizon’s first bid valued Straight Path at $2.3 billion ($135.96 per share), and the telecom giant raised that to $184 a share last Monday.
The acquisition implies a premium of 486% to Straight Path’s closing price of $31.41 on January 11, the day before the company announced that it had settled a dispute with the Federal Communications Commission (FCC) and had begun a strategic review. Compared to the stock’s price on the day before AT&T revealed its offer for the company, Straight Path’s premium is 404%.
Straight Path was being sought for its 735 millimeter-wave (mmWave) licenses in the 39 GHz band and 133 licenses in the 28 GHz band that cover the entire United States, including the top 40 markets. mmWave technology is one of the cornerstones upon which next generation high-speed 5G networks will be built.
By itself, mmWave technology is not sufficient to generate 5G speeds due in large part to its inability easily to travel through buildings or other obstructions. The Institute for Electrical and Electronics Engineers (IEEE) has a good explanation of some of the basic technologies being developed to provide wireless networks that can download an entire movie in high-definition in less than a second compared with about 10 minutes on today’s 4G/LTE networks.
Verizon stock posted a new 52-week low in the week of May 1 at $45.76 per share and closed Friday at $45.84. The stock’s 52-week high is $56.95 and the 12-month consensus price target is $50.32. The company’s dividend yield ended the week down slightly at 4.98%.