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December 5, 2005 8:29 am

Verizon mulls directories options

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Verizon Communications, the second largest US telecoms group, is considering selling or spinning off its US phone directories business in a deal that could raise as much as $15bn.

Verizon’s information services business has 7,300 employees, $3.6bn in annual revenues and generates a strong and predictable cash flow that could make it attractive to potential suitors.

The unit also controls SuperPages.com, one of the largest and fastest-growing local search sites.

The proceeds of a sale or spin off would be used to help fund the group’s higher growth Verizon Wireless joint venture with the UK’s Vodafone and the group’s ambitious Fios fibre optic network.

The Fios network is designed to enable Verizon to deliver video and TV services and to compete head-on with US cable companies.

Verizon is expected to spend about $30bn over the next 15 years to roll out the network, which it believes is essential if the company is to continue to grow in the face of the declining market for traditional fixed line telephony and a slowing market for director-based advertising and other non-core activities.

A sale or spin off would also enable Ivan Seidenberg, Verizon’s chief executive, to steady investors’ concerns about the group’s high level of capital spending.

Verizon’s shares have fallen 21 per cent this year, in part because of the success that cable companies and rivals in the voice over internet protocol market have had in attracting subscribers.

Announcing the Verizon move, Mr Seidenberg said: “With the MCI merger expected to close shortly, this is the right time for us to optimise our business mix and unlock value.

“Given the attractive opportunities developing in the local search and advertising markets for VIS, we believe a divestiture would provide VIS with more flexibility to manoeuvre in the fast-changing environment of content providers.”

“This was the logical next step to unlock value for shareholders,” said Jason Armstrong of Goldman Sachs in a note to investors. “Verizon has a few levers to pull in response to the share price weakness over the past year.”

Analysts also noted that the sale of the Verizon directory business would mark the biggest directory deal ever and follows several similar transactions.

Denver-based Qwest Communications and Reston, Virginia-based Sprint Nextel both sold their directories businesses to raise money and pay down debt.

Because directories are such reliable cash generators they have attracted interest in the past few years both from private equity firms and from RH Donnelley, the biggest owner of directories.

Qwest sold its Dex Media unit initially to firms including Carlyle Group, Welsh Carson Anderson & Stowe. The business was subsequently acquired by RH Donnelley, which also bought Sprint’s directory unit.

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