Verizon spins off local lines in three states

Verizon announced this morning it is spinning off its local lines in Maine, New Hampshire and Vermont to its shareholders and will merge that spin-off into FairPoint Communications, a North Carolina-based conglomerate of rural local exchange carriers. The complex deal is being valued at $2.715 billion.

The spin-off will cover 1.5 million access lines, approximately 180,000 DSL customers and approximately 600,000 long-distance customers, according to Verizon. Once the spin-off to Verizon shareholders is complete, the new company will be merged into FairPoint, which currently operates 31 LECs in 18 states, managed just over 300,000 access line equivalents.

The two companies say the deal is a win-win situation for consumers, Verizon employees and both companies. FairPoint is promising to accelerate broadband deployment in the region, where Verizon has come under some criticism, especially in Vermont, for lower DSL penetration rates than in other states. Verizon has long been expected to spin off some of its rural operations as the company focused more on building fiber-to-the-premises networks in more densely populated urban and suburban areas.

With the acquisition, FairPoint quickly bulks up, said Gene Johnson, chairman and CEO, in a prepared statement.

“We believe this transaction will create an opportunity for further investment in Maine, New Hampshire and Vermont, strengthen the region's economy by creating jobs and improve service to customers through capital investment,” said Gene Johnson, chairman and CEO of FairPoint. “At the same time, we have accelerated FairPoint's growth through a single transaction, creating a much larger company with increased financial strength and flexibility that will continue to focus on maximizing value for investors.”

Verizon said the deal also will provide job security for its employees, about 3000 of whom will be transferred to FairPoint, which has agreed to honor union contracts and said it will add about 600 jobs. About 300 current Verizon employees in the three states who work in areas of the company other than the local exchange will remain with their current Verizon division, the company said.

The complex financial agreement, which must be approved by FairPoint shareholders and regulators, states that Verizon will receive $1.7 billion in value from newly issued debt that the new subsidiary will incur, so that Verizon’s own debt load is reduced by that amount. Its shareholders will receive one share of FairPoint stock for each 55 shares of Verizon stock in a transaction that is tax-free, except for money paid to acquire partial shares. The approximate value of Verizon shareholders’ stake is $1.015, for a total deal value of $2.715 billion.

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