Spin-offs part of long-term pattern

Article Excerpt

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. Selling mainly rural operations like these makes sense. The…

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