After Today's Deals, the Math Is Simple

 | Sep 03, 2013 | 1:47 PM EDT
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Verizon's (VZ) making the right move. Microsoft's (MSFT) making the wrong one.

Sure, maybe I will regret those words when Microsoft-Nokia (NOK) deal turns into a powerhouse that crushes Samsung and Apple (AAPL). Verizon may well flounder and cut its dividend because it paid too much when it shelled out $130 billion to pay Vodafone (VOD) for the 49% of Verizon Wireless it hadn't already owned. Maybe Microsoft got a bargain with that handset business, as well as a potential new CEO in Steven Elop, currently the chief executive of Nokia. Maybe this is really Microsoft's chance to get big into mobile, and you have to respect that it's better late than never.

My problem, though, is that one company is throwing good money after a winner, Verizon Wireless -- and the other is going after a loser in Nokia.

Verizon Wireless is the 100-million-subscriber gorilla. I know there's renewed competition now: Sprint (S) is armed with Softbank money, T-Mobile (TMUS) has a rejuvenated CEO, and Deutsche Telephone is ready to pony up what's necessary in order to be competitive. I sure don't like Verizon Wireless as much as I did before Softbank and Deutsche Tel decided the U.S. was too precious to waste.

Plus, I wish Verizon had stuck by its earlier guns and paid $100 billion, not $130 billion -- although $100 billion is totally monumental. I'm conservative about debt, but I guess the train is pulling out of the interest-rate station, so action had been required -- and Vodafone had been motivated now that the competition in the U.S. could cut down on profitability here.

But the math is simple: Verizon's numbers are going higher when the deal is done, and that means its stock will be a buy when the smoke clears and the shares settle down. Maybe you should even buy some at current levels.

Microsoft? I don't know why I would want to buy it unless the company is going to split up, and we have no idea if that will happen. That said, the idea of a Windows-based utility, an entertainment company and a mobile company with Skype built in is pretty darned attractive. If the stock gets back to $28, where it was two quarters ago, then I think it might be worth a look. But that's a 10% fall from the current price, and I wouldn't own it through that kind of decline.

Nokia's a better play, because it will still have wireless infrastructure, mapping and a large intellectual property portfolio, plus all of that cash. Someone might take a run at it. That said, if you bought it on my July call, it is time to sell at least half and maybe all, because I wouldn't want to wait around for something to develop when it already has.

I think that the Microsoft deal smacks of desperation. Think of it like this: Apple's struggling with Samsung, and Apple is a brilliant company that really knows what it is doing. What has Microsoft done right in the last decade, other than Xbox? I can't think of anything.

The Verizon deal? I think that Verizon had been fed up with doing everything right and having to fork over so much money to Verizon Wireless to pay to Vodafone. It's almost as if Verizon's borrowing cheaply to buy back its own shares. That dividend's looking mighty good, too.

I keep thinking back to when I sat next to Microsoft CEO Steve Ballmer at our reunion and he showed me the Nokia phone. Frankly, it was fabulous. I couldn't believe how good it was.

But, in the end, many thought the Zune was superior to the iPod. Where the heck did that get you? A best-of-breed device doesn't mean that much if the game is already over. With Apple and Samsung, I think the game is over. Because, as much as I liked the Microsoft-Nokia phone, it simply isn't that much better. The differentiation isn't great enough. The market dominance of Apple and Samsung is too impossible to ignore. Unless Microsoft pays Verizon to take its phone, instead of vice-versa, I see nothing good here. As Verizon CEO Lowell McAdam told me today, he's going to wait by the phone for Microsoft to call and offer to pay -- but I shouldn't get my hopes up.

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