Verizon/Vodafone and Microsoft/Nokia deals driven by cheap debt, worries on interest rates

Verizon Communications' (NYSE:VZ) $130 purchase of Vodafone's 45 percent stake in Verizon Wireless and Microsoft's (NASDAQ:MSFT) decision to pay around $7.2 billion for Nokia's (NYSE:NOK) handset business were done for both strategic reasons and financial ones. And, as The Verge notes, the financial ones had a lot to do with fears about rising interest rates.

For several months now, interest rates have been ticking up in anticipation that the Federal Reserve will taper its bond-buying program, known as quantitative easing, which has helped keep interest rates at historic lows in the hopes of spurring economic growth. However, with signs that the economy might be improving, and with investors' speculations that the Fed could change its policy, interest rates have been spiking. That pushed Verizon to do the deal now while debt is still relatively cheap, rather than wait. This view was confirmed by Verizon Communications CEO Lowell McAdam, who told the Wall Street Journal: "The opportunity really crystallized because of the capital markets. It was really a perfect storm on the financial perspective on the positive side."

Microsoft, with more than $60 billion in cash reserves that it holds overseas, may have made its purchase of Nokia because it felt it could spend the money with hopes of a growing economy on the horizon. That same rational could spur other tech companies to make major deals before the end of the year. Article


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