Verizon Communications (NYSE: VZ) announced on Monday that it would be acquiring TracFone (parent company América Móvil, (NYSE: AMX) in a deal that would further consolidate the American cellular industry. The agreement between Verizon and current TracFone owner América Móvil is valued at $6 billion and is expected to close in 2021.
According to the announcement released by Verizon, the purchase will bring a variety of improvements to TracFone customers. TracFone has long used Verizon's national network to provide service to its customers; with the purchase, TracFone customers will not only continue to be served through Verizon's network, but they can also expect access to the firm's 4G LTE and 5G networks, along with any future technologies. Verizon plans on expanding Tracfone's already considerable operations, with the low-cost carrier already being sold at 90,000 retail locations in the US.
"This transaction is aligned with what we do best: providing reliable wireless service alongside a best-in-class customer experience," says Verizon Chairman and CEO Hans Vestberg. "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."
TracFone is best known for its low-cost service, offering cheap monthly plans as well as prepaid phone services, both of which allow customers a certain number of minutes for talk and text. The prepaid carrier's existing customer base would push Verizon past rivals AT&T (NYSE: T) and T-Mobile (NASDAQ: TMUS) and their respective prepaid carrier brands, such as Cricket and Metro.
The deal is valued at $6 billion. Payment for the acquisition is divided down the middle into $3.125 billion in cash and $3.125 billion in common stock. An additional $650 million is on the table as well, which will be awarded based on the achievement of "performance measures and other commercial arrangements," according to Verizon.
Investors seem to have responded positively to the news. Verizon's share price popped 1.1% from the opening price to a daily high of $60.68 but ended the day at $60.31 after an afternoon slump. As of market close on Tuesday, Verizon's stock is at $60.60, after a brief recovery followed by a slight slump.