Verizon Wireless 2013 Annual Report Download - page 34

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Wireless
Wireless Transaction
On September 2, 2013, Verizon entered into a stock purchase agreement
(the Stock Purchase Agreement) with 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condi-
tions 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sub-
sidiary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$60.15billionofVerizon’scommonstock,
par value $0.10 per share (the Stock Consideration), (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 of approxi-
mately $2.5 billion. As a result of the Wireless Transaction, Verizon issued
approximately 1.27 billion shares. The total cash paid to Vodafone and
the other costs of the Wireless Transaction, including nancing, legal and
bank fees, were nanced through the incurrence of third-party indebted-
ness(see“ConsolidatedFinancialCondition”).
In accordance with the accounting standard on consolidation, a change
inaparent’sownershipinterestwhiletheparentretainsacontrolling
nancial 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 will account for
the Wireless Transaction by adjusting the carrying amount of the non-
controllinginteresttoreectthechangeinVerizon’sownershipinterest
in Verizon Wireless. Any dierence between the fair value of the consid-
eration paid and the amount by which the noncontrolling interest is
adjusted will be recognized in equity attributable to Verizon.
Omnitel Transaction
OnFebruary21,2014,VerizonandVodafonealsoimplemented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. We will recognize a
gain on the disposal of the Omnitel interest in the rst quarter of 2014.
Verizon Notes
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and$2.5billiondueFebruary21,2025.TheVerizon
Notes bear interest at a oating 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 oating rate equal to three-month
LIBOR,plus1.222%,andtheeleven-yearVerizonnotesbearinterestat
aoating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, armative 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 securities 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 aliates for a redemption 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 specied
amounts during specied periods, commencing January 1, 2017. The
Verizon Notes held by third parties will not be redeemable. Verizon has
agreed to le a registration statement with respect to the Verizon Notes
at least three months prior to the Verizon Notes becoming transferable.
Other Consideration
Included in the other consideration paid to Vodafone is the indirect
assumption of long-term obligations with respect to 5.143% Class D and
Class E cumulative preferred stock issued by one of the Purchased Entities.
BoththeClassD(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 will be classied as liability instruments and will be recorded
at fair value as determined at the closing of the Wireless Transaction.
Spectrum License Transactions
Since 2012, we have entered into several strategic spectrum transactions
including:
• During the third quarter of 2012, after receiving the required regula-
tory approvals, Verizon Wireless completed the following previously
announced transactions in which we acquired wireless spectrum that
will be used to deploy additional 4G LTE capacity:
o
Verizon Wireless acquired AWS spectrum in separate transactions
with SpectrumCo and Cox TMI Wireless, LLC for which it paid an
aggregate of $3.9 billion at the time of the closings. Verizon Wireless
has also recorded a liability of $0.4 billion related to a three-year ser-
vice obligation to SpectrumCo’s members pursuant to commercial
agreements executed concurrently with the SpectrumCo transaction.
o Verizon Wireless completed license purchase and exchange transac-
tions with Leap Wireless, Savary Island Wireless, which is majority
ownedbyLeapWireless,andasubsidiaryofT-MobileUSA.Asaresult
of these transactions, Verizon Wireless received an aggregate $2.6
billion of AWS and PCS licenses at fair value and net cash proceeds
of$0.2billion,transferredcertainAWSlicensestoT-MobileUSAand
a700megahertz(MHz)lowerAblocklicensetoLeapWireless,and
recorded an immaterial gain.
• During the rst quarter of 2013, we completed license exchange trans-
actionswithT-MobileLicenseLLCandCricketLicenseCompany,LLC,
a subsidiary of Leap Wireless, to exchange certain Advanced Wireless
Services (AWS) licenses. These non-cash exchanges include a number
of intra-market swaps that we expect will enable Verizon Wireless
to make more ecient use of the AWS band. As a result of these
exchanges, we received an aggregate $0.5 billion of AWS licenses at
fair value and recorded an immaterial gain.
• During the third quarter of 2013, after receiving the required regulatory
approvals,VerizonWirelesssold39 lower700MHzB blockspectrum
licenses to AT&T in exchange for a payment of $1.9 billion and the
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
ACQUISITIONS AND DIVESTITURES