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Why Vonage Stock Soared Today

By Joe Tenebruso – Nov 22, 2021 at 7:31PM

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An international telecom titan wants to buy the business communications company for $6.2 billion.

What happened

Shares of Vonage Holdings (VG) jumped 27% on Monday after Ericsson (ERIC 2.04%) agreed to acquire the cloud communications provider.  

So what

The all-cash deal values Vonage at $6.2 billion, or $21 per share. That's a premium of 28% to the stock's closing price on Friday.

Acquiring Vonage will allow Ericsson to expand its presence in a wireless enterprise market that could grow to $700 billion by 2030. "Vonage gives us a platform to help our customers monetize the investments in the network, benefiting developers and businesses," Ericsson CEO Börje Ekholm said in a press release.

Two business people shaking hands.

Ericsson and Vonage reached an agreement on a potential merger. Image source: Getty Images.

Ekholm touted Vonage's base of more than 120,000 customers and over 1 million registered developers. He also noted the benefits of the Vonage Communications Platform, which makes it easy for developers to embed messaging, voice, and video communications into their applications:

Imagine putting the power and capabilities of 5G, the biggest global innovation platform, at the fingertips of developers. Then back it with Vonage's advanced capabilities, in a world of 8 billion connected devices. Today we are making that possible. 

The transaction is expected to close in the first half of next year, pending regulatory and shareholder approval.

Now what

Ericsson expects the deal to be accretive to its adjusted earnings per share and free cash flow by 2024. The Swedish telecommunications giant also reiterated its long-term goal of free cash flow as a percentage of revenue of 9% to 12%.

Additionally, Vonage CEO Rory Read highlighted other potential benefits of a merger with Ericsson.

"The convergence of the internet, mobility, the cloud, and powerful 5G networks are forming the digital transformation and intelligent communications wave, which is driving a secular change in the way businesses operate," Read said. "The combination of our two companies offers exciting opportunities for customers, partners, developers, and team members to capture this next wave."

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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