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Is Verizon Communications (VZ) Eyeing CBS Corp Takeover?

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According to recent reports by CNBC and the New York Post, the U.S. telecom behemoth Verizon Communications Inc. (VZ - Free Report) is considering the acquisition of CBS Corp. , the largest TV broadcaster in the U.S. However, neither of the companies has confirmed the news. The industry circle was rife with speculations about a possible merger between CBS and Viacom Inc. . On Dec 12, Viacom announced that it is no longer considering any strategic merger with CBS.

Exponential growth of mobile data usage supported by flourishing high-end smartphone and tablet devices has changed the entire industry dynamics of the traditional telecom and cable TV industry. The merger between telecom or cable TV operators with media giants has become crucial as both sectors are aggressively delivering content on online digital platform.

Cable TV giant Comcast Corp. (CMCSA - Free Report) became a media mogul after acquiring NBC Universal in 2011. Verizon’s closest rival AT&T Inc. (T - Free Report) is currently awaiting regulatory approval for its proposed $85.4 billion cash-and-stock deal to acquire media giant Time Warner Inc. .

Verizon is no exception to this trend, as evident from its acquisition of AOL Inc. in Jun 2015. This buyout was an endeavor to derive maximum benefits from its mobile video platform as AOL provides advertising technology enabling automated buying and selling of ads online. Further, in Oct. 2015, Verizon acquired Millennial Media, a leading company that sells mobile ads across numerous websites and applications. Its advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting.

Recently, Verizon entered into a definitive agreement with Yahoo! Inc. to acquire the core businesses of the latter for $4.83 billion in a bid to create a major player in the mobile media and advertising space. Under the terms of the deal, Verizon will take control of Yahoo's core assets including its search products, digital content brands, advertising and analytics assets. Verizon anticipates completing the deal in the first quarter of 2017.

Ever since AT&T finalized its deal with Time Warner, industry circle has been rife with the rumor that Verizon is looking to venture into the media and entertainment industry to remain competitive. As prospects in the wireless industry are growing bleak due to a saturated market, telecom players are looking to boost revenues through the adoption of different strategies.

If Verizon finally decides to takeover CBS, the combined entity will become a major player in the consolidated telecom-media space. Verizon is the largest telecom operator with a nationwide presence in both the wireless and wireline front. In Oct 2015, the company launched its ad-supported mobile video service go90 targeting the younger generation. On the other hand, CBS is the undisputed leader in the TV broadcasting industry. Therefore, an acquisition of CBS by Verizon will give control over both high-quality content and distribution medium.

Price Performance of Verizon

Year to date, the stock price of Verizon has witnessed growth of 11.99%. However, this figure was below the Zacks categorized U.S. Wireless industry’s growth rate of 19.33% in the same time period.

Meanwhile, Verizon has a very powerful diversified business model. In the wireless front, it will start initial deployment of the upcoming 5G network in 2017. In the wireline front, the company is aggressively expanding its fiber-based footprint. In the digital media front, Verizon has become a major contender for the lucrative online advertisement business. We believe these are primary reasons for the stock to carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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