Verizon buys the largest MVNO in the U.S. for over $6 billion

Verizon, the largest wireless provider in the states, has acquired Tracfone from America Movil for $3.125 billion in cash and $3.125 billion in shares of Verizon stock. In addition, another $650 million could be paid out to America Movil depending on whether Tracfone achieves certain performance goals. The latter has approximately 21 million subscribers and 90,000 retail locations in the U.S. Verizon calls it "the leading pre-paid and value mobile provider in the U.S." and states that the deal now expands Verizon's business into the value arena.

Tracfone is indeed the largest MVNO in the U.S. and operates brands like TracFone, StraightTalk Wireless, SIMPLE Mobile, NET10 Wireless, and Total Wireless. These firms don't own their own networks. Instead, they pay wholesale for wireless capacity and resell it. Tracfone contracts for wireless service from Verizon, AT&T, T-Mobile U.S., and U.S. Cellular. Last year, the company generated $8.1 billion in revenue.

Once the deal closes, Verizon says that it will bring its 4G and 5G networks and other innovations to Tracfone customers. It also will expand Tracfone's distribution and marketing opportunities. 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. We are excited about the opportunity to bring Tracfone and its brands into the Verizon family where we can put the full support of Verizon behind this business and provide exciting and compelling products into this attractive segment of the market. We are pursuing this important strategic acquisition from a position of strength given our very strong and prudent financial profile."

Ronan Dunne, Executive Vice President, and Group CEO, Verizon Consumer Group added, "Since its launch, Tracfone has developed strong consumer brands and has established itself as a clear leader in the value mobile segment. This transaction firmly establishes Verizon, through the Tracfone brands, as the provider of choice in the value segment, which complements our clear leadership in the premium segment. We’re looking forward to welcoming all of Tracfone's customers and each of Tracfone’s nearly 850 valuable employees. We are excited to expand our relationship with Tracfone's distribution partners, and when Tracfone's customers become part of our family, they will get the best of both worlds – more choices, better services, and new features thanks to Verizon’s investment–but with the flexibility and control that they have come to value with its prepaid plans. Being connected is now more important than ever, and Tracfone customers will benefit from Verizon’s innovations–both now and in the future."

Verizon says that it expects the deal to be accretive in the first full year following the deal's closing. Big Red says that the acquisition of Tracfone will not require it to "materially impact capital expenditures." The deal still requires some regulatory approval and undergo what Verizon calls "customary closing conditions." The purchase is expected to close during the second half of 2021. And if you're keeping track of the investment banking league tables for some strange reason, Credit Suisse acted as financial advisor to Verizon and Debevoise & Plimpton acted as its legal advisor. New Street telecom analyst Jonathan Chaplin says that if Verizon were to move Tracfone's 8 million subscribers to its own networks, the carrier could save $800 million annually. Over 13 million Tracfone customers are already using Verizon.

By purchasing Tracfone, Verizon becomes more competitive in the pre-paid sector of the industry. At last count, Verizon has 4 million pre-paid customers compared to 18 million for AT&T and 21 million for T-Mobile. Verizon has preferred to focus on its post-paid business where it can achieve a higher profit margin with a much lower churn. The press release issued by Verizon to announce the transaction includes a new tag line that says, "Bringing together industry leading value and premium brands on America’s most reliable network."