Verizon buys TracFone Wireless for up to $6.9 billion

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Verizon Communications Inc. agreed to buy TracFone Wireless Inc. from America Movil SAB for as much as $6.9 billion, as the largest U.S. wireless carrier seeks to expand its mobile business into the so-called prepaid market.

Verizon will pay $3.125 billion in cash and $3.125 billion in stock, with as much as $650 million additional tied to performance goals, it said in a statement. TracFone, a U.S. prepaid mobile service, is a subsidiary of billionaire Carlos Slim’s Mexico-based wireless carrier. It’s the largest U.S. prepaid service, with 21 million subscribers.

The acquisition comes as Verizon faces new pressure from an enlarged T-Mobile US Inc., which concluded its merger with Sprint Corp. earlier this year. T-Mobile has 20.6 million prepaid subscribers, with the largest group under the Metro brand. AT&T Inc. has 18 million prepaid subscribers, most under its Cricket brand.

Though Verizon is the largest wireless carrier overall, with 116 million regular monthly subscribers, it has only 4 million prepaid customers.

The prepaid market attracts a wide range of people, many young or poor who don’t have a strong credit history. While there are higher risks of nonpayment and less loyalty than among regular subscribers who pay bills at the end of the month, the prepaid market is also one of the biggest pipelines for customers upgrading to higher-priced plans. Verizon had never been a big participant in that market.

Verizon, which had sold network capacity to TracFone for 15 years, started talks with America Movil nearly a year ago, said Ronan Dunne, who heads Verizon’s consumer business.

“We were looking for a way to control our own destiny in the value segment or prepaid segment,” he said. “It’s fair to say we were not serving all segments of the market. So I was keen on making sure that we had the scale and distribution to maximize those assets. It’s definitely a doubling down on our commitment to a network strategy.”

TracFone includes several brands, including Straight Talk and Simple Mobile, that are sold in large retail chains like Walmart Inc. and Target Corp. The business will remain a separate division and continue to be based in Miami. Dunne said there is no plan to change the TracFone name or any of its brands.

TracFone and America Movil’s operations in Colombia were the company’s only prepaid-mobile units to add users during the second quarter, the Mexican mobile-phone giant reported in July.

America Movil has been strengthening its position across Latin America. Last week, Brazil’s Oi SA said it accepted a 16.5 billion reais ($3.1 billion) offer for its mobile unit from Telefonica Brasil, TIM and America Movil’s Claro. The companies are now considered a “stalking horse” and have the right to top other proposals.

Last year, America Movil had also announced its purchase of Telefonica’s assets in Guatemala and El Salvador. While the Guatemalan transaction went through, the company announced last week that regulatory hurdles in El Salvador led it to terminate that deal.

Bloomberg News