Mega Mergers Lead to More Unemployed

Verizon store front

Mega Mergers Lead to More Unemployed
| Published May 20, 2014 |

By Earl Perkins
Thursday Review associate editor

The proposed merger between telephony giant AT&T and satellite provider DirecTV is just one in a series of major realignments to occur this year in the ever-shifting world of communications, content and technology. The biggest of these business moves are marketed by the companies as advantageous to customers, though few people see that as the outcome. Just ask anyone who has subscribed to cable service with either Time Warner or Comcast.

The recent blockbuster deal ending the relationship between Verizon Communications and Vodafone means a major victory for almost everyone but the little guy, according to several media outlets and the Wall Street Journal's Al Lewis.

Verizon is paying $130 billion U.S. dollars to Vodafone shareholders, cashing them out and giving Verizon Communications sole ownership of Verizon Wireless operations. Vodafone pays Verizon $3.5 billion USD for its 23.1 percent stake in Vodafone Italy, with Verizon accepting $2.5 billion USD in debt obligations.

Financially that translates into a $129 billion USD deal, with $58.9 billion of that being cash. The transaction will be funded with a bond offering (eight-part US loan for $49 billion and a three-part European loan worth $5.4 billion, along with a $6.6 billion one-year bridge loan.

The American portion of the loan was cobbled together with help from JPMorgan Chase, Morgan Stanley, Bank of America and Barclays. Fees paid to those lending institutions totaled $41.6 million apiece, with several other smaller underwriters receiving payouts, for a grand total of $265.3 million. Verizon and Vodafone split the fees, with Verizon sweetening the bond interest rates. The largest offerings were a 10-year bond with a 5.15 percent yield and a 30-year bond at 6.55, contrasted with the US Department of the Treasury's 2.9 and 3.9 percent offering.

Since the Verizon deal was set in motion months ago, and despite all that cash from Verizon, Vodafone announced a write-down of the value of its operations in several European countries. The EU’s economy continues to shrink, and Vodafone says even with its new growth in emerging markets—India, Turkey and South Africa—the crippling slump in Germany, Portugal, Italy and the Czech Republic has hurt its numbers.

The bond sale sets a record for investment-grade bonds, breaking Apple's $17 billion plateau from last April, while Sprint Nextel set the junk grade bond record, selling $6.5 billion in September. Vodafone will be roughly splitting the proceeds with its shareholders.

Business expansion and developing new technologies were not in the cards for Apple as it used the largesse to pay big dividends and repurchase stock. This strategy causes the market to hover near all-time highs, while the remainder of the economy stagnates.

International Paper recently had a $1.5 billion stock buyback, and it will be raising its dividend 17 percent. The next day it announced plans to lay off 1,100 workers and shutter its Cortland, Alabama, paper mill.

"These decisions are especially difficult because of the impact to long-serving and hardworking employees, their families and the surrounding communities," said International Paper Chief Executive John Faraci.

The company has underfunded pensions, $10 billion in debt and declining demand for its products. The investors will be thrilled, and the CEO will be handsomely rewarded for his fine business acumen as long-time workers are physically escorted off the property.

Since the fall of Lehman Brothers in September 2008, U.S. economic policies have favored huge banks and corporations to the detriment of smaller institutions. In a recent small-business survey by alternative business lender Merchant Cash and Capital, 70 percent of respondents said lending hasn't returned to 2007 levels and 45 percent found difficulty obtaining loans.

Stockholders, banks and taxmen in the U.K. and U.S. will profit handsomely, with even charities receiving a small piece of the pie.

Meanwhile, common citizens and long-time employees face a bleak future—pink slips and unfunded retirements, along with outsourced jobs and surly service from the few “lucky” people who survived initial cost-cutting measures.

The captains of industry have little to fear from the disgruntled public because their lobbying efforts easily reach into the highest echelons of government. But smile, because those dollars may eventually help stimulate the economy, and I'm sure they'll be trickling down to you—soon.

Related Thursday Review articles:

AT&T Makes Bid For DirecTV; R. Alan Clanton; Thursday Review; May 19, 2014.

Comcast: Don’t Worry, Be Happy; R. Alan Clanton; Thursday Review; April 9, 2014.