Nears Spinoff of Directories
Possible Move Could Fetch As Much as $13 Billion; Hint of a
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
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
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.
Dionne Searcey at