Telecommunications giant Verizon --got a bit smaller today--after announcing a $2.7 billion transaction to spin off its local exchange assets in Maine, New Hampshire and Vermont. Verizon plans to merge the assets with FairPoint Communications . This was good news for FairPoint's stock--it's been up as high as 13% today.
So what's behind a move like this? Why does a telecom giant sell off assets to a smaller, more local firm? Gene Johnson is chairman and of FairPoint. Virginia Ruesterholz is president of Verizon. Both appeared on "Morning Call" to answer the questions.
Ruesterholz says the move gives Verizon a chance to focus on other areas (she didn't say which areas) of business. Perhaps most importantly, she said the money Verizon gets from the deal (see below) will help the company pay off its debt. This could be important for Verizon as it could face a big problem in South America. Verizon owns a big share of the largest telecom company in Venezuela--which is now a takeover target of Venezuelan President Hugo Chavez. Verizon had been trying to sell it's share in the Venezuelan company before Chavez stated his aim.
For his part--Johnson was pleased that the deal would give FairPoint even more access to rural customers in Maine, New Hampshire and Vermont. He said he's confident FairPoint will be able to expand broadband service in the three states. He says 80% of his customer base has broadband already.
Some facts on the deal: Verizon will own 60% of the "new" company while FairPoint will have a 40% stake. FairPoint will hire some 600 new workers--and absorb some 3,000 current Verizon workers. Verizon gets $1.015 billion in FairPoint stock and $1.7 billion in debt from the eventual new company. In the states of Maine, New Hampshire and Vermont--Verizon has some 1.5 million phone access lines, 180,000 high speed internet customers and 600,000 long distance customers.