As expected, Verizon confirmed both the sale of most of its wireless cell towers to American Tower Corporation and the sale of its wireline assets in three states to Frontier Communications on Thursday afternoon, deals that will net the carrier a total of $15.54 billion.
Reports had surfaced earlier this month that Verizon was looking to sell off both wireless cell towers and its wireline assets to pay down its debt associated with taking control of Verizon Wireless from Vodafone Group plc (NYSE: VOD), as well as to pay off its hefty spectrum auction fees. (See Vodafone Agrees to $130B Verizon Stake Sale and Hey Big Spenders! AT&T, Dish & VZ Splash Cash on Spectrum.)
American Tower Corp.
First up, American will acquire rights to around 11,324 towers and will purchase around 165 additional towers from Verizon for $5.056 billion in cash at closing.
Under the terms of the deal, American Tower gets exclusive rights to lease and operate the Verizon Communications Inc. (NYSE: VZ) towers for approximately 28 years. The tower company will also get fixed price purchase options to acquire the towers based on their anticipated fair market values at the end of the lease terms. (See Verizon Plotting Tower, Wireline Sale – Report.)
In a statement on the deal, American Tower CEO Jim Taiclet praised Verizon towers' leasing potential, defined by their height of 200 feet, ample structural capacity and ground space, attractive transmission locations, solid ground lease profile and excellent document and technical information. The towers span all 50 states with half of the sites in American's top 100 basic trading areas (BTAs).
This buy will make American the biggest tower company, beating out current leader Crown Castle International Corp. (NYSE: CCI) with more than 40,000 total tower sites. (See AT&T to Sell, Lease Cell Towers for $4.85B and T-Mobile USA in $2.4B Towers Deal.)
For Verizon, the carrier will sublease space on its towers for a minimum of 10 years, and potentially up to 50, with a monthly rent of $1,900 per site and fixed annual rent increases of 2%.
Frontier is spending $10.54 billion -- $9.9 billion in cash, plus $600 million in assumed debt -- for Verizon's wireline assets in California, Florida and Texas. Verizon CEO Lowell McAdam said on a call Thursday that these states were good performers for Verizon, but were hard to scale given their distance from Verizon's 25 other states with a wireline business. By selling them off, Verizon’s wireline operations are now concentrated on the East Coast.
Frontier says the deal will double its size and add 35% to its cash flow during the first year. As part of the deal, Verizon is transferring 11,000 employees to Frontier and says it will work with Frontier to ensure a smooth transition for the employees, as well as Verizon's customers in those states.
At the end of fourth quarter of last year, Verizon had around 3.7 million voice customers, 2.2 million high-speed data customers (including approximately 1.6 million FiOS Internet customers) and 1.2 million FiOS Video customers in those three states.
"Our agreements to monetize our towers and sell wireline assets in Florida, Texas and California are straightforward and create value for all parties," McAdam said on a call Thursday.
Verizon ended 2015 with $10.6 billion of cash on hand, which it plans to use to fund a $5 billion accelerated share-repurchase program, also announced on Thursday.
Verizon expects the American deal to close during the first half of the year and Frontier in the first half of 2016. Its shares are up 6 cents -- or .13% -- at $47.86 Thursday afternoon.
— Sarah Thomas, , Editorial Operations Director, Light Reading