WHEN: TODAY, TUESDAY,SEPTEMBER 3RD
WHERE: CNBC'S "SQUAWK ON THE STREET"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Verizon Chairman & CEO Lowell McAdam today on CNBC's "Squawk on Street." Following is a link to the video of the interview on CNBC.com: http://www.cnbc.com/id/15839263.
All references must be sourced to CNBC.
DAVID FABER: With $130 billion in stock and cash, it is the third largest acquisition of all time and will require the largest corporate bond offering on record, all of it enabling Verizon to take complete control of Verizon Wireless by buying out its longtime partner, Vodafone. Lowell McAdam is the chairman and CEO of Verizon and he joins now in the midst of this-- Mr. McAdam, nice to have you. Glad you could make the time.
LOWELL MCADAM: Good morning, David. Good to see you.
DAVID FABER: And you. You know, Lowell, there was-- certainly there were plenty of your shareholders that might've anticipated a transaction of this type would've occurred this year, alot of conversation out there. But much of that also focused on a price that would've appeared to have been lower than where you ended up. And I'm curious--for those who were expecting $100 billion or $105 billion and you end up at$130 billion, how do you explain the rationale for going to that seemingly very high level?
LOWELL MCADAM: Well-- David--this obviously wasn't a surprise. This is something we've been working on since 2002. And if you look at how the business has grown over the years, I mean,this is arguably the most valuable wireless asset in the world.
We spent a lot of time triangulating between our shareholders and our partners and our own internal business plans. We're very comfortable with where we've-- landed. If you look,where can you buy a business that has 100 million loyal customers, that has 50%margins, that has no integration risk, and has-- a great field in front of it to grow the business even further? So, we feel very good about where we've landed and it's going to create a lot of shareholder value as we go forward.
DAVID FABER: Yeah. I mean,you-- you've talked about that in the which I listened to that ended a bit ago.You also spoke about the great growth potential for the company. But I'm curious. You're going to have more debt on your balance sheet.
You're not going to be hobbled, by any means, but nonetheless it's going to be-- a large-- amount of leverage. And you're dealing with a more competitive-- marketplace, it would seem, Lowell. SoftBank now controls Sprint, willing to spend a lot of money.And T-Mo back from the dead as well. Are you going to be in a position to be able to assure that kind of growth with stronger competitors and a higher debt load?
LOWELL MCADAM: Sure. I mean,that-- you know, we've been around this business for a while here, right. This isn't our first rodeo. So, you know, we looked at what we needed to invest from a spectrum perspective and as you see from our announcement, we'll be-- EPS accretive by about 10%-- right from day one after the close.
So, we're in a strong position financially. But more importantly, David, we've got the assets, whether it be our cloud platform, our security platform, our machine-to-machine platform, to really find the next gear. We talk about there's always a higher gear around our business. We think that there's a great opportunity, and if anybody ought to be worried it ought to be T-Mobile and Sprint.
DAVID FABER: You know, you've mentioned a number of times, you were quoted, as well, as saying-- not that there are synergies, per se, from the deal, but that there are benefits in owning all of this company. But I'm curious as to what they are and whether you can explain. Because you control Verizon Wireless. You've made all the decisions for all these years. You've run it completely as you saw fit. So,what is to be gained on an operational level from owning 100%, as opposed to 55%?
LOWELL MCADAM: Well, I mean,it's pretty simple on the financial side. Just look since January of 2012 till now, we've paid $25.5 billion in dividends, and 45% of those went to Vodafone,so. But I think the integration, we talk about a one-Verizon philosophy inside our company.
And that's being able to seamlessly use the assets that we have to provide what we call powerful answers to our customers. So, I think being able to very agilely take those-- different assets that I just talked about and create those solutions for customers.
We'll be able to move a lot more quickly. But look, I'm not-- Vodafone didn't hinder us going forward. Tome, it's a moment in time issue. Where we see the market going to 300%, 400%,500% market penetration instead of the 100% we sit at today. With all of our assets in play, we think we can-- lead the market there.
JIM CRAMER: Lowell, Jim Cramer. Good--
LOWELL MCADAM: Hey, Jim. Good to see you, too.
JIM CRAMER: --to see you,sir. Thank you. One of the reasons why-- I have loved the Verizon stock for so long is your commitment to the dividend. I am very high growth assets. Do you still need to provide that dividend? And will you still, if the board allows it,raise the dividend regularly?
LOWELL MCADAM: Well, look, I can't-- predict the dividend, Jim. I have to be a little careful there. But--priorities for us, we need to have the highest quality networks to take care of our customers. We're going to pay down this debt in a reasonably short period of time to get that one notch downgrade, get that restored, back up.
And then, the dividend is right up there in the top-three priorities for us. So, I think the board showed that in their action yesterday when you-- we unanimously improved another--increase in our dividend. So, we hope to maintain a strong yield for our shareholders going forward. And I expect we will.
JIM CRAMER: One of the things that Verizon did under Ivan Seidenberg that was pretty interesting was that they took areas that really weren't growth areas and they sold them-- sold them to Frontier, sold them to some other players. Would you be able to get rid of some of your under performing land line businesses to be able increase the growth even further than-- it is now?
LOWELL MCADAM: Yeah-- Jim,that's a possibility. I'm glad you brought up Ivan. Because, you know, there's been a lot of-- talk about getting this deal done. And this deal wouldn't have gotten done without all the work that Ivan did over the last several years.
So, I'm very beholden to him-- for his contributions and his mentorship of me. But if you talk about opportunities here, now that we have this asset, we have one Verizon, I talked with the team about we're going to trim some limbs around the tree here. And things that aren't performing are will not be part of our portfolio so that we can invest in things that will drive the kind of growth that we're excited to be able to tap in…
DAVID FABER: You know-- I'm just curious, though, Lowell, about your view of the marketplace. Because it does seem as though this has been a really historic year again with SoftBank having taken over Sprint, with-- T-Mo and PCS getting together and seemingly,at least, being-- a bit more energized. How can you still have the confidence that you're going to grow that 100 million subscriber level even more and maintain those margins, given what seems to be a lot more competition?
DAVID FABER: Well-- look,David, I'd point out-- there's no-- there's only one reason that SoftBank bought Sprint: They see tremendous potential in this market. There's a reason why Deutsche Telekom is doing what they're doing to combine assets. They see potential in this market.
I think the difference for us, and why we're so bullish, is no one has the assets that we have. And if you believe in the converged solutions that over the top is going to be in play,that-- that-- the machine-to-machine for health care and energy is going to be in play, boy, you don't want to be anywhere but the U.S. and you want to go big. And that's what we're doing.
DAVID FABER: Yeah. A quick question on the stock itself. It's weak today. There were a lot of questions on the call, and I've heard them as well from your investors, about concerns about what we call flow back. You're issuing an enormous amount of stock. There's just some institutions who can't hold it when the deal closes. How are you going to combat the forced selling that will take place as a result of that,that could be-- at least $30 billion, let's say, worth of your stock?
LOWELL MCADAM: Yeah. Well,look, we knew from the very beginning when we talked about this, whether it was merging the companies together or it was-- this-- this exit of the partnership,that there would be flow back. Flow back, I think, is going to be a temporary phenomenon.
But Fran and I are going to be on the road the next three weeks meeting with the shareholders that don't know the Verizon story. And I think we'll be able to mitigate-- some of that.But my view is that's going to be a temporary thing-- David. Maybe 90 days, sixmonths at the most. And-- we'll see a little transience there. But then, you know, we'll be back onto our growth trajectory.
DAVID FABER: Curious about your views on consolidation. We've seen a lot of transactions, this one, of course, most notable, but the others I mentioned. Are we done, do you think?Are we-- are we going to have four players in the wireless-- arena in the United States for many years to come?
LOWELL MCADAM: Well, it'd probably be a good one to ask Tom Wheeler as he comes into his-- new job in the F.C.C. But-- I think four players can coexist quite well here. I do see other consolidation-- that-- T-Mobile and Sprint may be-- may be doing some--
DAVID FABER: You- do--
LOWELL MCADAM: --AT&T and Verizon--
DAVID FABER: you do see that as a possibility, Sprint and T-Mo? You think that could still happen?
LOWELL MCADAM: I-- the big carriers I would, frankly, be a little bit surprised by that. I-- you know,again, that's probably a Tom Wheeler question. But I think T-Mobile could consolidate some small ones. I think Sprint could consolidate some small ones.'Cause it's really tough now for the really-- very small regional carriers to coexist in this market.
DAVID FABER: Yeah. Well, and,of course, you and AT&T. You know-- we had a big deal this morning and it wasn't yours. Nokia. I'm curious--
LOWELL MCADAM: Right.
DAVID FABER: --do you think Microsoft can reenergize Nokia as the bigger buyer out there right now of Samsung and Apple products, I would assume, when it comes to phones? Give your opinion on the deal and whether there can be a real viable third alternative for devices.
LOWELL MCADAM: Yeah. So, I mean, to answer the third alternative, absolutely. I mean-- I think there could be more than three. I wouldn't completely write off Blackberry. They've got some good-- very good assets here. But I corresponded with Steve and Steven about this.
I think it's a great move for them. Microsoft has great capabilities around software and when you look at those converged services, of all the video and the mobile platforms and the Office Suite, they're in great position. Nokia's been creative on the hardware side. They know each other now, after this joint venture. So, I think there's a good opportunity here and I'm glad that they did it.
JIM CRAMER: Lowell, can you change the equation here? They obviously need customers over at Nokia,Microsoft. What happens if they said, "You know what? We're going to pay you. We're going to pay you to sell us. Just turn everything upside down."And they get in and that way, they really have a real beachhead.
LOWELL MCADAM: Well, I'll wait by the phone for that call, (LAUGH) Jim. How about that? You know, look, I think some other models, if you look at, you know, we've just gone to this--share everything pricing. So, you can put your whole family on-- one-- plan. We've now got-- various lease options for phones.
So, I think the good thing about the competition that you're seeing now on both the handset side and the carrier side is there's some unique things coming out here. And you're going to expect to see some unique things from Verizon here in the next year.
DAVID FABER: Yeah. And finally-- Mr. McAdam, would like to end with, you know-- a broader question here. A lot of U.S. citizens have been peppered with stories over the last month, let's call it, about the N.S.A., about the work it does to monitor--traffic, much of which goes over your network. What can you tell your customers-- since they first learned about-- this spying-- about the privacy that they can expect, and what your cooperation is with the U.S. government?
LOWELL MCADAM: Well, I think,David, about all I can say is that we have to comply with subpoenas that come out that the government issues to us. We're very careful about customer information and we don't release it to anybody or share it with anybody any other way than by subpoena. And, so, they just have to know that-- we're complying with the laws and that's what we're required to do.
DAVID FABER: All right. Well,a very big deal and an interesting-- road ahead. Lowell, we look forward to--visiting with you-- along the way, as well. Thanks for your time this morning.Appreciate it.
LOWELL MCADAM: Okay. Take care, guys. Bye.
DAVID FABER: Lowell McAdams,chairman and CEO of Verizon.
With CNBC in the U.S., CNBC in Asia Pacific, CNBC in Europe, Middle East and Africa, CNBC World and CNBC HD , CNBC is the recognized world leader in business news and provides real-time financial market coverage and business information to approximately 390 million homes worldwide, including more than 100 million households in the United States and Canada. CNBC also provides daily business updates to 400 million households across China. The network's 16 live hours a day of business programming in North America (weekdays from 4:00 a.m. - 8:00 p.m. ET) is produced at CNBC's global headquarters in Englewood Cliffs, N.J., and includes reports from CNBC News bureaus worldwide.
CNBC also has a vast portfolio of digital products which deliver real-time financial market news and information across a variety of platforms. These include CNBC.com, the online destination for global business; CNBC PRO, the premium, integrated desktop/mobile service that provides real-time global market data and live access to CNBC global programming; and a suite of CNBC Mobile products including the CNBC Real-Time iPhone and iPad Apps.
Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site athttp://www.nbcumv.com/mediavillage/networks/cnbc/