Verizon Fields Offers for Phone Lines Value of Two Packages May Total Up to $8 Billion; Bigger Focus on Web Services
By DIONNE SEARCEY and DENNIS K. BERMAN May 10, 2006; Page B4 http://online.wsj.com/article/SB114722393158348471.html?mod=todays_us_marketplace Verizon Communications Inc. is fielding offers for two big packages of traditional telephone lines that could have a combined value of up to $8 billion, say people familiar with the matter. The possible sales are part of the New York-based phone giant's strategy to delve deeper into the wireless and broadband arenas, while getting out of the traditional phone business in U.S. areas that aren't slated for fiber upgrades -- which allow the company to sell more Internet-based services -- and therefore are less valuable to the company in the long run. But so far Verizon's past efforts to sell systems have had limited results. [Selling Off] The latest possible deals include a package of access lines in three entire states: Vermont, New Hampshire and Maine. These 1.6 million lines could carry a value of some $2 billion to $3 billion, people say. Verizon also has been shopping a package dubbed "GTE North" that comprises about 3.4 million access lines in former GTE Corp. territories in Indiana, Illinois, Ohio and Michigan. Two people familiar with the matter said they could have a value of $4 billion to $5 billion. The identities of the prospective buyers couldn't be learned. But they might include smaller phone companies such as CenturyTel Inc. and Citizens Communications Co. Some expect the lines in New England to be shed before those in the Great Lakes states based on the interest of potential buyers. Both companies and Verizon officials declined to comment. Verizon is undertaking an estimated $20 billion fiber upgrade of its network as it seeks to sell more services that are Internet based, rather than focus on traditional phone service, which is a shrinking business. Shedding some of Verizon's roughly 48 million landlines could be important as it looks to finance its fiber upgrade as well as pursue buying out Vodafone Group PLC's 45% stake in the two companies' joint venture, Verizon Wireless. Executives at both companies say that transaction could be worth at least $40 billion based on prices in recent wireless transactions, said a person familiar with the matter. Vodafone officials, who declined to comment, have yet to agree to relinquish their stake. Still, these soft auctions of traditional lines seem an annual rite for Verizon, which has for years mulled big landline sales that haven't amounted to much. Verizon sold its Hawaii operations to Carlyle Group two years ago for about $1.3 billion. In recent years the company has explored the sale of big packages of lines in New York state that ultimately didn't result in a deal. The landline-sale attempts could lead nowhere, particularly because the company is considering a unique financial structure. That structure, dubbed a "Reverse Morris Trust," helps limit taxes on an asset sale. Under those rules, Verizon would simultaneously spin off and merge the business with another company. Typically, companies add debt to the spun-off company to extract cash. One crucial requirement of the structure demands that Verizon shareholders hold at least 50% of the new company's equity, meaning that Verizon must find a buyer who is valued less than the two packages of lines. That leaves only a small universe of potential buyers, such as CenturyTel, which has a $4.3 billion market capitalization and Citizens, which has a $4.4 billion market value. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list medianews@twiar.org To unsubscribe send an email to: [EMAIL PROTECTED]
