2.	Acquisitions and Divestitures

 

Wireless

Spectrum License Transactions

During the fourth quarter of 2016, we entered into a license exchange agreement with affiliates of AT&T Inc. to exchange certain Advanced Wireless Services (AWS) and Personal Communication Services (PCS) spectrum licenses. This non-cash exchange was completed in February 2017, at which time we received $1.0 billion of AWS and PCS spectrum licenses at fair value and recorded a pre-tax gain of $0.1 billion in Selling, general and administrative expense on our condensed consolidated statement of income for the three months ended March 31, 2017.

During the first quarter of 2017, we entered into a license exchange agreement with affiliates of Sprint Corporation, which provides for the exchange of certain PCS spectrum licenses. These wireless licenses are classified as Assets held for sale on our condensed consolidated balance sheet as of March 31, 2017. This non-cash exchange is expected to be completed in the second quarter of 2017 and we expect to record an immaterial gain.

During the three months ended March 31, 2017, we acquired various other wireless licenses for cash consideration that was not significant.

Wireline

XO Holdings

In February 2017, we completed our acquisition of XO Holdings’ wireline business (XO), which owns and operates one of the largest fiber-based Internet Protocol (IP) and Ethernet networks, for total cash consideration of approximately $1.8 billion, of which $0.1 billion was paid in 2015. Separately, in February 2016, we entered into an agreement to lease certain wireless spectrum from a wholly-owned subsidiary of XO Holdings that holds its wireless spectrum, which included an option to buy the subsidiary. In April 2017, Verizon exercised its option to buy that subsidiary for approximately $0.2 billion, subject to certain adjustments. The transaction is subject to customary regulatory approvals and is expected to close by the end of 2017.

The condensed consolidated financial statements include the results of XO’s operations from the date the acquisition closed. Had this acquisition been completed on January 1, 2017, the results of the acquired operations of XO would not have had a significant impact on the consolidated net income attributable to Verizon.

The acquisition of XO was accounted for as a business combination. The consideration was preliminarily allocated to the assets acquired and liabilities assumed based on their fair values as of the close of the acquisition. Upon closing, we recorded approximately $0.4 billion of goodwill, and $0.3 billion of other intangibles. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired. The goodwill recorded as a result of the XO transaction represents future economic benefits we expect to achieve as a result of the acquisition. The goodwill related to this acquisition is included within our Wireline segment (see Note 3 for additional information).

 

Data Center Sale

On December 6, 2016, we entered into a definitive agreement, which was subsequently amended on March 21, 2017, with Equinix, Inc. pursuant to which Verizon will sell 23 customer-facing data center sites in the United States and Latin America, for approximately $3.6 billion, subject to certain adjustments. The sale does not affect Verizon’s data center services delivered from 27 sites in Europe, Asia-Pacific and Canada, or its managed hosting and cloud offerings.

We plan to account for a portion of the transaction, consisting of the data center buildings, land and related assets, as a sale of real estate. The real estate assets to be sold of $0.6 billion are currently included in Verizon’s continuing operations and classified as held and used within Plant, property and equipment, net on our condensed consolidated balance sheet at March 31, 2017. The other primarily non-real estate assets and liabilities that will be sold are currently included in Verizon’s continuing operations and reclassified as held for sale. At March 31, 2017, assets to be sold of $0.8 billion, classified as Non-current assets held for sale on our condensed consolidated balance sheet, were principally comprised of goodwill, plant, property and equipment and other intangible assets. The liabilities associated with the sale were not significant and have been included in current and non-current Other liabilities on our condensed consolidated balance sheet at March 31, 2017. The transaction is subject to customary regulatory approvals and closing conditions, and is expected to close during the first half of 2017.

Other

Acquisition of Yahoo! Inc.’s Operating Business

On July 23, 2016, Verizon entered into a stock purchase agreement (the Purchase Agreement) with Yahoo! Inc. (Yahoo). Pursuant to the Purchase Agreement, upon the terms and subject to the conditions thereof, we agreed to acquire the stock of one or more subsidiaries of Yahoo holding all of Yahoo’s operating business, for approximately $4.83 billion in cash, subject to certain adjustments (the Transaction). Prior to the closing of the Transaction, pursuant to a reorganization agreement, Yahoo will transfer all of the assets and liabilities constituting Yahoo’s operating business to the subsidiaries to be acquired in the Transaction. The assets to be acquired will not include Yahoo’s cash, its ownership interests in Alibaba, Yahoo! Japan and certain other investments, certain undeveloped land recently divested by Yahoo or certain non-core intellectual property. We will receive for our benefit and that of our current and certain future affiliates a non-exclusive, worldwide, perpetual, royalty-free license to all of Yahoo’s intellectual property that is not being conveyed with the business.

Yahoo employees who transfer to Verizon will have any unvested Yahoo restricted stock units that they hold converted into cash-settleable Verizon restricted stock units, which will have the same vesting schedule as their Yahoo restricted stock units. The value of those outstanding restricted stock units on the date of signing was approximately $1.0 billion.

On February 20, 2017, Verizon and Yahoo entered into an amendment to the Purchase Agreement, pursuant to which the Transaction purchase price will be reduced by $350 million to approximately $4.48 billion in cash, subject to certain adjustments. Subject to certain exceptions, the parties also agreed that certain user security and data breaches incurred by Yahoo (and the losses arising therefrom) will be disregarded (1) for purposes of specified conditions to Verizon’s obligations to close the Transaction and (2) in determining whether a “Business Material Adverse Effect” under the Purchase Agreement has occurred.

Concurrently with the amendment of the Purchase Agreement, Yahoo and Yahoo Holdings, Inc., a wholly owned subsidiary of Yahoo that Verizon has agreed to purchase pursuant to the Transaction, also entered into an amendment to the related reorganization agreement, pursuant to which Yahoo (which has announced that it intends to change its name to Altaba Inc. following the closing of the Transaction) will retain 50% of certain post-closing liabilities arising out of governmental or third party investigations, litigations or other claims related to certain user security and data breaches incurred by Yahoo. In accordance with the original Transaction Agreements, Yahoo will continue to retain 100% of any liabilities arising out of any shareholder lawsuits (including derivative claims) and investigations and actions by the SEC.

The Transaction remains subject to customary closing conditions, including the approval of Yahoo’s stockholders, and is expected to close in the middle of 2017.

Other

During the three months ended March 31, 2017, we acquired various other businesses and investments for cash consideration that was not significant.