verizon

DOW JONES & CO. INC. $55.80, New York symbol DJ, jumped 55% after News Corp. offered to buy the company for $60.00 a share, probably in some combination of cash and News Corp. stock. News Corp. owns several media properties, including Fox Broadcasting and the New York Post. It feels The Wall Street Journal and other Dow Jones publications and web sites will strengthen the new business-news cable channel it plans to launch later this year. The Bancroft family owns 82.4% of Dow Jones’ class B shares, which carry 10 votes each. This plus their regular common stock holdings gives them 64.2% of the total votes. Right now, roughly half of the family’s members oppose the News Corp. offer. However, a formal rejection could trigger a lawsuit accusing the company’s directors of breaching their fiduciary duty to act in the best interests of all stockholders....

ALLTEL CORP. $61.59, New York symbol AT, may soon decide to put itself up for sale, to take advantage of the consolidation trend in the telecommunications industry. However, likely buyers such as AT&T and Verizon would face huge anti-trust hurdles. Even without a takeover, Alltel still has plenty of long-term appeal. Its focus on smaller cities and rural areas lets it avoid direct competition with larger wireless providers. It’s also doing a good job of expanding its revenue by offering new services. Alltel is a buy....

VERIZON COMMUNICATIONS INC. $38 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $110.2 billion; WSSF Rating: Average) is slowly shifting away from its traditional telephone business into areas with higher growth potential. For example, it recently acquired business communication specialist MCI Inc. and spun off directory publisher Idearc Inc. Verizon has now agreed to sell its phone operations in Vermont, New Hampshire and Maine to FairPoint Communications Inc. (New York symbol FRP). The $2.7 billion price, about 2.5% of Verizon’s market cap, consists of $1.0 billion in FairPoint stock and $1.7 billion of debt securities. Verizon will probably use these securities to cut its long-term debt of $30.1 billion (0.65 times equity). Verizon plans to hand out its new FairPoint shares to its own investors — one for every 55 Verizon shares held — as a tax-deferred dividend. Verizon investors will own 60% of the combined company....

IDEARC INC. $31 (New York symbol IAR; Income Portfolio, Consumer sector; Shares outstanding: 146.0 million; Market cap: $4.5 billion; WSSF Rating: Average) publishes over 1,200 white pages and yellow pages directories in 35 states. The company is the former directories division of Verizon Communications Inc. In November 2006, Verizon spun off Idearc to its stockholders as a tax-deferred dividend of one Idearc share for every 20 Verizon shares held. Idearc has a 30-year deal to supply Verizon with directories, which cuts its risk. Revenue from directories has weakened in the past few years, as more people use the Internet to locate individuals and businesses. Rising paper and transportation costs have also squeezed profits. But Idearc owns SuperPages.com, a leading online directory....

Many studies show that one of the best ways for a company to unlock hidden value is to spin off a subsidiary as a separate company. Shares of the new company sometimes fall in the first few months, as many investors tend to sell their new stock. But over time, both the parent and the spin-off usually outperform comparable stocks. In the past two years, several of our recommendations have completed spin-offs. All of these new companies have done well. That’s not surprising, since they came from well-managed parent companies with long histories of rising profits. Here are five recent spin-offs. We like all of them, but only three are buys right now....

INTEL CORP. $20.82, Nasdaq symbol INTC, earned $0.26 a share in the fourth quarter of 2006, down 35.0% from $0.40 a year earlier. The company began expensing stock options in 2006, which cut its earnings in the most recent quarter by $0.04 a share. Restructuring costs also weighed on earnings in the latest quarter. Revenue fell 4.9%, to $9.7 billion from $10.2 billion, due to a price war with rival chipmaker Advanced Micro Devices. But Intel spent 17% of its 2006 revenue of $6.10 a share on research, so it’s more profitable than it looks. The company is phasing out older chips in favor of its more powerful dual-core and quad-core chips. But Intel is still ramping up production of these new products. The costs of running plants below full capacity cut its gross profit margin in the fourth quarter to 49.6% of revenue, from 61.8% a year earlier. Intel feels its margins will hover around 50% in 2007. The news spooked investors, and the stock fell roughly 7%. But Intel’s new chips should help it win back market share it lost to AMD in the past two years, particularly as next month’s release of the new Microsoft Windows Vista operating system spurs computer sales....

ARKANSAS BEST CORP. $39.75, Nasdaq symbol ABFS, has struggled in the past few months, as weaker sales of consumer and industrial goods hurt demand for its trucking services. Rising fuel costs and upgrades to its fleet also squeezed profits. But the stock jumped several dollars this week, partly in response to the dive in oil prices, which will cut its fuel costs. In addition, retailers will soon have to re-stock their stores after the busy Christmas buying season. The stock is still cheap at just 11 times earnings, while the $0.60 dividend yields 1.5%. Arkansas Best is a buy for aggressive investors. IDEARC INC. $29.53, New York symbol IAR, was a wholly owned subsidiary of Verizon Communications until November 2006, when Verizon spun off Idearc through a special dividend of one Idearc share for every 20 Verizon shares they held....

VERIZON COMMUNICATIONS INC. $35 (New York symbol VZ, Conservative Growth Portfolio, Utilities sector; WSSF Rating: Average) has spun off its directories business as a separate company called IDEARC INC. $29 (New York symbol IAR; Income Portfolio, Consumer sector; WSSF Rating: Average). Idearc publishes over 1,200 yellow pages and white pages directories in 35 states. It also owns SuperPages.com, a major online directory service. Verizon investors received a special dividend of one common share of Idearc for every 20 shares held. Stockholders will only be liable for capital gains taxes when they sell they new shares....

VERIZON COMMUNICATIONS INC. $33 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; WSSF Rating: Average) is investing heavily to expand its wireless networks, and replace traditional copper phone lines with high-speed fiber optic cables. These upgrades should help it attract new customers, and offer new services such as TV programs and games. As part of this strategy, Verizon will probably either sell or spin off its telephone directories business by the end of this year. This business accounts for about 5% of its total revenue, and is facing growing competition from online search services. A straight sale would give Verizon more cash to upgrade its networks. However, it would have to pay tax on the proceeds....

WEYERHAEUSER CORP. $60 has raised its quarterly dividend for the second time since April 2005, from $0.50 a share to $0.60. It now yields 4.0%. Earnings have improved and the company is still the world’s biggest holder of softwood timberlands. Buy. VERIZON COMMUNICATIONS INC. $33 plans to discontinue its Airfone service, which lets airline passengers make phone calls from special units built into the back of seats. Verizon prefers to invest in its ground-based wireless networks, rather than upgrade its aging Airfones to compete with new services that offer air travellers high-speed Internet access. Buy. PEPSICO INC. $59 plans to build a new facility in Oklahoma that will specialize in sport drinks, particularly its top-selling Gatorade brand, and flavored waters. Demand for these products is growing strongly, and this plant will help expand PepsiCo’s sales in several southeastern states which are major markets for it. We now see PepsiCo as a buy for long-term gains.