At a time when AT&T Inc. is gaining praise for disentangling itself from recent deals, is it time for Verizon Communications Inc. to think about a merger of its own?
LightShed Partners analysts Walter Piecyk and Joe Galone are asking whether Verizon needs to make a drastic move to reinvigorate its business after a difficult year. Verizon seemed to acknowledge that a change was needed. It was announced earlier this week that Manon Brouillette, the chief executive of its consumer business, would be leaving the position after less than a year. Hans Vestberg, the CEO of the whole company, will be responsible for consumer business.
That move strikes the LightShed analysts as very odd. Piecyk and Galone don't believe in Verizon's growth potential in wireless, and aside from price increases, they don't see compelling strategic choices that the company could take to turn around its consumer business.
See also: Verizon looking to increase the pace of execution amid leadership change.
In the absence of organic growth or failing plan, CEOs often turn to inorganic solutions, they wrote. There isn't a solution to this issue with tuck-in acquisitions. It would need to be something transformational with sizable synergy opportunities. We are not arguing that this is the best or right thing to do, but simply noting it is the predictable next step. The AT&T model isn't great, with the company's Time Warner deal being an example of the sort of diversification-oriented deals that ended up resulting in money-losing divestitures. In their view, T-Mobile's model is better, as the company's deal for Sprint is part of a trend of wireless acquisitions that have paid off for telecommunications operators.
The analysts said that convergence is the end game, and the largest, yet digestible deal available for Verizon is to buy Charter. They think it would be an ugly deal, but they also see ways it could gain shareholder approval from those who own Charter Communications Inc. CHTR. The only mega deal that could gain investor support would be vertical integration of connectivity services, they wrote.