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Verizon Nears Spinoff of Directories
Possible Move Could Fetch As Much as $13 Billion;  Hint of a Vodafone Deal?
By Dionne Searcey
The Wall Street Journal
Friday, July 7, 2006

Verizon Communications Inc. is inching closer to spinning off its directories business in a deal that could be valued at as much as $13 billion.

The phone giant, which announced plans to shed its directory business late last year, filed papers with the Securities and Exchange Commission that would enable it to spin off the division, should it select that route.

Verizon hasn't made up its mind whether to spin off or sell the business, but wanted to start the paperwork process for a spinoff so any transaction could be complete by year end. The company also may consider a sale, but a solid buyer has yet to emerge, people familiar with the matter said.

Verizon, based in New York, is looking to shed assets that aren't directly tied to a new strategy of transforming itself into a high-growth Internet-based and wireless company rather than a traditional phone company. Verizon in April announced plans to sell its Caribbean and Latin American assets to two Mexican companies for $3.7 billion.

It also is fielding offers for its land lines in Vermont, New Hampshire and Maine as well as states near the Great Lakes region. Verizon has already shed its Hawaiian phone business and a directories unit in Canada.

Directories are a shrinking business but still throw off cash. Companies such as Qwest Communications International Inc. and the former Sprint Corp. have sold such businesses in times of financial need. Executives at AT&T Inc., meanwhile, have signaled plans to keep the company's directories even after completing its pending deal to absorb BellSouth Corp. and its directories.

Verizon's directory business reported revenue of $3.45 billion in 2005, down from $3.55 billion a year earlier. Its earnings before interest, taxes, depreciation and amortization -- a common telecom metric -- was $1.75 billion. People familiar with the situation say the operation could be valued at $10 billion to $13 billion.

For Verizon, a spinoff is appealing because it could be done tax-free, unlike a sale. Also, some of Verizon's $38 billion debt load might be shifted to the new directories company. Verizon has been spending heavily on the upgrade of its networks to fiber, which is expected to cost $20 billion.

Investor concern over the upgrade has helped pushed down Verizon's stock more than 19% since the end of 2004. Verizon shares were up 14 cents to $33.02 at 4 p.m. in composite trading yesterday on the New York Stock Exchange.

Analysts also have interpreted Verizon moves toward shedding its directories to be an indicator that it might use the proceeds to help finance a buyout Vodafone Group PLC's 45% stake in Verizon Wireless, a move that would give Verizon full control of the cellphone service provider.

People familiar with the situation said a deal with Vodafone isn't imminent, and Verizon's plans for its directories aren't linked to any Vodafone deal. They said the move is simply part of Verizon's new strategy to focus on offering services tied to its fiber rollout.

Verizon's directories, called Verizon Information Services, employs 7,300 people and publishes 1,400 white- and yellow-pages directories with a circulation of 131 million.

The directories industry has come under attack from new print competitors, as well as from Internet sites such as Yahoo and Google. Verizon's directories also have an online business called superpages.com.

A new spun-off company would likely be more lean and nimble than when controlled by Verizon, analysts said.

"As a stand-alone operation, this business can more readily focus on growth in rapidly evolving online markets," said Peter Thonis, a Verizon spokesman.

Write to Dionne Searcey at dionne.searcey@wsj.com

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