Shares of Windstream Holdings surged more than 12 percent Tuesday when the Little Rock, Arkansas-based telecom company said it was going to spin out some of its fiber and copper cable and other real-estate assets into a real-estate investment trust, or REIT. The move will allow Windstream to cut down its debt load and save millions every year in taxes—and the company said it has the blessing in the form of a 'favorable private letter ruling' from the Internal Revenue Service.
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That news gave the entire industry a jolt: Frontier Communications gained more than 14 percent on the day while CenturyLink was up almost 6 percent.
"We believe this means every network stock we cover is roughly 20 percent undervalued at this point, as they should largely be able to avoid paying taxes going forward," wrote Oppenheimer analyst Timothy Horan, as reported in The Wall Street Journal. Debate as to whether the likes of AT&T, Verizon and cable giants like Comcast (parent of NBC Universal and CNBC) would ever follow suit is already heating up.
And it may not end there. In a sense, the move—and the seal of approval from the IRS—will now get shareholders and executives across other industries thinking about how they might spin off their own real estate assets to lower their tax bill.
There is a herd mentality with these kinds of maneuvers; both the safety the herd offers from any individual company receiving outsize scrutiny in Washington as well as the incentive for rivals to follow suit once a competitor moves to lower its tax bill so as not to lose ground.
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