America Online 2015 Annual Report Download - page 50

Note2
Acquisitions and Divestitures
Wireless
Wireless Transaction
On September2, 2013, Verizon entered into a stock purchase
agreement (the Stock Purchase Agreement) with Vodafone Group
Plc (Vodafone) and Vodafone 4 Limited (Seller), pursuant to which
Verizon agreed to acquire Vodafone’s indirect 45% interest in Cellco
Partnership d/b/a Verizon Wireless (the Partnership, and such interest,
the Vodafone Interest) for aggregate consideration of approximately
$130billion.
On February21, 2014, pursuant to the terms and subject to the con-
ditions set forth in the Stock Purchase Agreement, Verizon acquired
(the Wireless Transaction) from Seller all of the issued and outstanding
capital stock (the Transferred Shares) of Vodafone Americas Finance
1 Inc., a subsidiary of Seller (VF1 Inc.), which indirectly through certain
subsidiaries (together with VF1 Inc., the Purchased Entities) owned the
Vodafone Interest. In consideration for the Transferred Shares, upon
completion of the Wireless Transaction, Verizon (i)paid approximately
$58.89billion in cash, (ii)issued approximately 1.27billion shares
of Verizon’s common stock, par value $0.10 per share (the Stock
Consideration), which was valued at approximately $61.3billion at
the closing of the Wireless Transaction, (iii)issued senior unsecured
Verizon notes in an aggregate principal amount of $5.0billion (the
Verizon Notes), (iv)sold Verizon’s indirectly owned 23.1% interest
in Vodafone Omnitel N.V. (Omnitel, and such interest, the Omnitel
Interest), valued at $3.5billion and (v)provided other consideration,
which included the assumption of preferred stock valued at approxi-
mately $1.7billion. The total cash paid to Vodafone and the other costs
of the Wireless Transaction, including financing, legal and bank fees,
were financed through the incurrence of third-party indebtedness. See
Note7 for additional information.
In accordance with the accounting standard on consolidation, a
change in a parent’s ownership interest while the parent retains a con-
trolling financial interest in its subsidiary is accounted for as an equity
transaction and remeasurement of assets and liabilities of previously
controlled and consolidated subsidiaries is not permitted. As a result,
we accounted for the Wireless Transaction by adjusting the carrying
amount of the noncontrolling interest to reflect the change in Verizon’s
ownership interest in the Partnership. Any difference between the fair
value of the consideration paid and the amount by which the noncon-
trolling interest is adjusted has been recognized in equity attributable
to Verizon.
Omnitel Transaction
On February21, 2014, Verizon and Vodafone also consummated the
sale of the Omnitel Interest (the Omnitel Transaction) by a subsidiary
of Verizon to a subsidiary of Vodafone in connection with the Wireless
Transaction pursuant to a separate share purchase agreement. As a
result, during 2014, we recognized a pre-tax gain of $1.9billion on the
disposal of the Omnitel interest in Equity in (losses) earnings of uncon-
solidated businesses on our consolidated statement of income.
Verizon Notes (Non-Cash Transaction)
The Verizon Notes were issued pursuant to Verizon’s existing
indenture. The Verizon Notes were issued in two separate series, with
$2.5billion due February21, 2022 (the eight-year Verizon Notes) and
$2.5billion due February21, 2025 (the eleven-year Verizon Notes).
The Verizon Notes bear interest at a floating rate, which will be reset
quarterly, with interest payable quarterly in arrears, beginning May21,
2014. The eight-year Verizon notes bear interest at a floating rate
equal to three-month London Interbank Offered Rate (LIBOR), plus
1.222%, and the eleven-year Verizon notes bear interest at a floating
rate equal to three-month LIBOR, plus 1.372%. The indenture that
governs the Verizon Notes contains certain negative covenants,
including a negative pledge covenant and a merger or similar trans-
action covenant, affirmative covenants and events of default that are
customary for companies maintaining an investment grade credit
rating. An event of default for either series of the Verizon Notes may
result in acceleration of the entire principal amount of all debt securi-
ties of that series. Beginning two years after the closing of the Wireless
Transaction, Verizon may redeem all or any portion of the outstanding
Verizon Notes held by Vodafone or any of its affiliates for a redemp-
tion price of 100% of the principal amount plus accrued and unpaid
interest. The Verizon Notes may only be transferred by Vodafone
to third parties in specified amounts during specified periods, com-
mencing January1, 2017. Any Verizon Notes held by third parties will
not be redeemable by Verizon prior to their maturity dates. Verizon
has agreed to file a registration statement with respect to the Verizon
Notes at least three months prior to the Verizon Notes becoming
transferable.
Other Consideration (Non-Cash Transaction)
Included in the other consideration provided to Vodafone is the indirect
assumption of long-term obligations with respect to 5.143% Class
D and Class E cumulative preferred stock (Preferred Stock) issued
by one of the Purchased Entities. Both the Class D shares (825,000
shares outstanding) and Class E shares (825,000 shares outstanding)
are mandatorily redeemable in April 2020 at $1,000 per share plus any
accrued and unpaid dividends. Dividends accrue at 5.143% per annum
and will be treated as interest expense. Both the Class D and Class E
shares have been classified as liability instruments and were recorded
at fair value as determined at the closing of the Wireless Transaction.
Deferred Tax Liabilities
Certain deferred taxes directly attributable to the Wireless Transaction
have been calculated based on an analysis of taxes attributable to
the difference between the tax basis of the investment in the noncon-
trolling interest that is assumed compared to Verizon’s book basis.
As a result, Verizon recorded a deferred tax liability of approximately
$13.5billion.
48 Verizon Communications Inc. and Subsidiaries
Notes to Consolidated Financial Statements continued