In a bid to hone its focus on wireless, television and the Internet, Verizon Communications announced yesterday that it is spinning off landline phone operations in Maine, New Hampshire and Vermont and combining the assets with rural carrier Fairpoint Communications. The tax-free deal is valued at roughly $1 billion. Fairpoint shares enjoyed a 15% boost on the news. Verizon shareholders will get $1.02 billion in Fairpoint stock and own 60% of the company. They will receive one share of FairPoint for each 55 shares of Verizon they own. Verizon, which recently divested its Dominican assets as well as Idearc, its directories business, is also interested in divesting rural assets in Ohio, Indiana, Michigan, Illinois and upstate New York. The streamlining is designed to speed up Verizon's construction of the country's fastest fiber network and enable it to compete with cable on pay-television service. Fairpoint plans to expand broadband connections in the three states within a year of the deal's closing.
• Sources: Business Week, Bloomberg, MarketWatch, Wall Street Journal. Conference call transcripts: January 16, 2007. Video: FairPoint, Verizon executives on the spinoff
• Related commentary: Verizon FairPoint Spinoff To Lower Debt - What Do Shareholders Have To Gain?, Howling At The Moon: Dogs and Flying Five 2007 Stock Picks, Verizon's Idearc Spinoff: It May Quickly Become a Value Stock
• Potentially impacted stocks and ETFs: Verizon Communications Inc. (NYSE:VZ), Fairpoint Communications Inc. (NASDAQ:FRP). Competitors: AT&T Inc. (NYSE:T), Qwest Communications International Inc. (NYSE:Q), Sprint Nextel Corp. (NYSE:S). ETFs: Telecom HOLDRs (NYSEARCA:TTH), iShares Dow Jones US Telecom (NYSEARCA:IYZ), iShares S&P Global Telecommunications (NYSEARCA:IXP), First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL)
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