Verizon Bets On Connected Car In $612 Million Hughes Deal

06/01/2012| 02:18pm US/Eastern

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--Verizon buying Hughes Telematics for $612 million

--Deal is a bet on the "connected car"

--Move highlights push to use wireless network on new platforms

(Updates with details thoughts and comment from executives and analysts)

 
   By Thomas Gryta 
   Of  
 

Verizon Communications Inc. (>> Verizon Communications Inc.) agreed to buy Hughes Telematics Inc. (>> HUGHES Telematics Inc), a provider of wireless-enabled services to cars, for $612 million in cash as the telecom heavyweight aims to broaden the way people use its network.

Atlanta-based Hughes provides auto-based technology and services such as online media, remote vehicle diagnostics and even medical-related services. For Verizon, the deal, expected to close in the third quarter, comes as the carrier will likely expand its data plans to cover more products.

Telecom carriers have said they want to offer broader data plans that will cover multiple devices and thus increase data usage as consumers become more willing to add other wireless products.

The move to expand data plans "represents an important shift in the carriers' pricing approach and a historic milestone for the industry overall," Wells Fargo analyst Jennifer Fritzsche said in a note to clients. Fritzsche sees Verizon Wireless -- a joint venture between Verizon and Vodafone PLC (VOD, VODPF, VOD.LN) -- and rival AT&T Inc. (>> AT&T Inc.) rolling out such plans this summer.

At a Sanford Bernstein conference Friday, AT&T Chief Executive Randall Stephenson stressed the importance of the so-called connected car to this effort. For Verizon, the car was the focus of the Hughes purchase.

"As we deploy 4G networks, we see streaming video and music services and other interactive media in the car," said John Stratton, president of Verizon Enterprise Solutions, in an interview.

Stratton also said the company was attracted to the flexibility of Hughes's platform and plans to expand its uses to other areas. For example, wireless technology could be used in houses to help manage energy consumption or security services.

Hughes will remain a separate unit, and Verizon will provide the wireless component for these businesses. Hughes is only six years old and has deals in place with Mercedes-Benz and Volkswagen (VLKAY, VOW.XE) to use its products in their vehicles.

Verizon Wireless already partners with General Motors Co. (>> General Motors Company) for its OnStar services and provides wireless services for Hughes's deal with Mercedes. AT&T provides the wireless connectivity for the Volkswagen deal. Both Verizon and AT&T declined to provide information about the future of that relationship.

The acquisition brings a nice premium to Hughes and its investors as Verizon will pay $12 a share, well above Thursday's closing price of $4.35. Private-equity company Apollo Global Management (>> Apollo Global Management LLC) provided initial financing to the company and is still the majority shareholder. The stock recently traded at $11.83, while Verizon slid 1.2% to $41.13.

Verizon defended the large premium by highlighting that Hughes is a high-growth company and that "significant due diligence" led to a "fair price." Both companies declined to comment further on the sale process.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

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