Verizon Shareholders Get FairPoint, But is it a Fair Shake?

By William Trent, CFA of Stock Market Beat

Not long ago we wrote that the Verizon’s (VZ) spinoff of its directory business seemed to be fortuitously timed to get $9 billion of debt off of the company’s balance sheet just before new accounting rules require them to recognize $20 billion of previously off-balance sheet benefits owed to retirees.  Now the company is taking care of another slug of debt.
Verizon to spin off local-phone assets; FairPoint shares rally – MarketWatch

Verizon investors would receive one share of FairPoint (FRP) for each 55 shares of Verizon that they own. The deal would be worth about $1 billion to Verizon investors based on FairPoint’s Friday closing price of $18.54. Verizon stockholders would own 60% of the company.

In addition, the spun-off phone assets would be assigned $1.7 billion in Verizon debt.

In Maine, Vermont and New Hampshire, Verizon serviced about 1.5 million local access lines as of last September.

At $1,800 per access line, the deal appears to be in line with recent transactions, and serves to take another slug of debt off Verizon’s balance sheet without incurring taxes for shareholders. However, small shareholders could come out of the deal with a handful of FairPoint shares worth little more than the commissions that would be incurred in selling them.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Starbucks (SBUX) call options; Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options;

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