Verizon to buy Tracfone for $6.25B

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Verizon, the country's largest phone company, is buying prepaid phone seller Tracfone for up to $6.9 billion, expanding its low-income customer business. The portfolio of Tracfone brands creates a platform for growth and innovation in Verizon's support of the value and low income segments. As Tracfone is the largest prepaid mobile virtual network operator (MVNO) in the United States, this means Verizon will gain a considerable 21 million direct subscribers.

Another big shift is taking place in the wireless space, with Verizon making the formal announcement on September 13 that it's now entered an agreement to purchase Tracfone. Verizon said Monday that it would continue to offer Lifeline through Tracfone.

Verizon has already been dabbling in the value segment of the market a bit with Visible, but this acquisition shows more than a passing interest, and a convenient way to step up its involvement: Rather than build up a brand on its own (as it's already doing), it can simply swallow up an MVNO it's already working with - even if most of us probably forgot that Tracfone even existed, it has plenty of paying customers. Hans Vestberg, Chairman and CEO of Verizon, said, "This transaction is aligned with what we do best: providing reliable wireless service alongside a best-in-class customer experience". Verizon will also expand its, 4G LTE and 5G services, in addition to "other innovative technologies". At last count, Verizon has 4 million pre-paid customers compared to 18 million for AT&T and 21 million for T-Mobile. Additionally, the agreement includes up to $650 million in future cash consideration based on certain predefined performance measures and other arrangements. "We are pursuing this important strategic acquisition from a position of strength given our very strong and prudent financial profile".

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The acquisition to drive significant benefits and network synergies and to be accretive in the first full year following closing, excluding transaction and integration costs, and will have immaterial impact on capital expenditures. The deal still requires some regulatory approval and undergo what Verizon calls "customary closing conditions".

Verizon said it expects the deal to close in the second half of 2021. And if you're keeping track of the investment banking league tables for some odd reason, Credit Suisse acted as financial advisor to Verizon and Debevoise & Plimpton acted as its legal advisor.

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