Verizon Communications (VZ) agreed Monday to buy prepaid wireless service provider Tracfone from Mexico-based America Movil (AMX) for $6.25 billion in cash and stock. Verizon stock climbed on the news.
The deal comes as more than 13 million Tracfone subscribers already rely on Verizon’s wireless network through a wholesale agreement. Tracfone, with roughly 21 million subscribers, is the largest reseller of cellphone services and has leased network capacity from Verizon, AT&T (T) and T-Mobile US (TMUS).
Verizon said it expects the acquisition “to be accretive in the first full year following closing, excluding transaction and integration costs.” In addition, Verizon said it “expects to drive significant benefits and network synergies from the transaction.”
Verizon stock climbed 0.9% to close at 60.32 on the stock market today. AT&T stock rose 0.5% to 29.14. Verizon stock, a Dow component, has an entry point of 62.32.
“Verizon doesn’t have an in-house flanker brand in prepaid (while T-Mobile has Metro and AT&T has Cricket); this deal will provide one,” Evercore ISI analyst Vijay Jayant said in a report to clients.
Verizon Stock: Tracfone Deal To Be Earnings ‘Accretive’
The deal will not “materially impact” capital expenditures, Verizon said. Tracfone operates more than 90,000 retail locations nationwide.
“This is a clear demonstration that Verizon is looking for additional growth,” Raymond James analyst Frank Louthan said in his note to clients.
“The Tracfone acquisition fills a need for Verizon and is a strategic decision given the latter’s balance sheet strength,” Louthan went on to say. “This also hedges Verizon against additional economic shocks by having a low-end product.”
Aside from the $6.25 billion purchase price, the agreement also includes up to an additional $650 million in future cash consideration related to the achievement of certain performance measures, the companies said.
Further, Verizon expects the transaction to close in the second half of 2021. Verizon stock was down 2% in 2020 as of Friday’s market close.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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