Special Situation Investing

Friday, February 02, 2007

Verizon Communications Inc. (VZ) - Spinoff

Telecommunications giant Verizon Communications Inc. (VZ) announced it will be spinning off it's consumer telephone business in Maine, New Hampshire and Vermont. The divisions will be sold/traded to an existing company Fairpoint Communications, Inc. (FRP). Details on the transaction are as follows:

The Verizon operations being sold would first be transferred to a newly created unit that would issue $1.7 billion worth of new debt before being sold to FairPoint.

Of the $2.72 billion being paid by FairPoint in the deal, Verizon shareholders would receive about $1.02 billion in FairPoint stock. Verizon would receive $1.7 billion, consisting of both cash and an undisclosed portion of the debt securities issued before the spinoff. Verizon would not own any shares in FairPoint after the transaction is completed.


The deal with FairPoint is expected to be completed within the next year.

FRP currently has a market cap of $720 Million so this is an absolutely massive transaction for them and for that reason alone, worth monitoring.

Verizon spun-off it's yellow page business to form Idearc (IAR) a few months ago.

These are the type of strategic moves I like to see in a company but I still dislike the underlying businesses. High debt load, commodity characteristics and slow growth, I just can't find anything too attractive here.


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