Verizon has announced that it is buying Tracfone in a deal worth $6.9 billion. With this purchase, it will expand its low-income wireless segments.
Tracfone is the largest reseller of wireless services in the US, having 21 million subscribers, with a network of more than 90,000 retail locations. It is owned by Mexico-based America Movil and has around 850 employees. It operates the Net10 and Straight Talk brands in the US.
Verizon to continue to offer Tracfone’s Lifeline services and StraightTalk
Tracfone does not run its physical network in the US and it pays companies like Verizon, AT&T, and T-Mobile a fee to make use of their network. Also, nearly two-thirds of their 21 million customers use Verizon via Tracfone renting its network.
Tracfone is the primary service provider of the US lifeline service that provides discounted phone and internet service for low-income customers. Post-acquisition, Verizon has agreed to continue offering the Lifeline services, and StraightTalk that provides prepaid, no-contract service phone plans.
Opportunity for growth in the low-income wireless segment
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Tracfone currently caters to the low-priced market under several different sub-brands that include Walmart Family Mobile Total Wireless, and Simple Mobile. With the selection of Tracfone brands, Verizon has an opportunity to expand in the value and low-income wireless segments.
Verizon Communications calls the executive team at Tracfone to ink the deal
It expects this deal to drive significant benefits and network synergies, increasing in the first full year after closing. It does expect the transaction to materially impact their capital expenditures.
The deal includes $3.125 billion in cash and $3.125 billion in Verizon common stock. Tracfone should also receive an additional $650 million cash payment that is tied to the performance measures. Verizon has appointed Credit Suisse as its financial advisor and Debevoise & Plimpton as its legal advisor. Also, the deal will reportedly close by the second half of the year 2021.