Verizon may sell directory business

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NEW YORK (AP) -- Verizon Communications Inc. might sell or spin off its phone book and online directories business to raise cash as it nears completion of its purchase of MCI Inc. and invests billions in rewiring its telephone network to deliver cable TV and speedier Internet access.

The company, saddled with long-term debt of $34.4 billion, disclosed late Sunday it was reviewing alternatives for Verizon Information Services. The unit provides sales, publishing and other services for 1,750 directory books, including 1,200 Verizon-branded publications with a circulation of 121 million copies.

Verizon did not say how much VIS might be worth, but published reports said the business could be valued at more than $17 billion. The company said VIS had operating revenue of $3.6 billion in 2004, operates from Texas and employs about 7,300 people. Analysts estimated the unit will show an operating profit of $1.8 billion for 2005.

"With the MCI merger expected to close shortly, this is the right time for us to optimize our business mix and unlock value," said Verizon Chief Executive Officer Ivan Seidenberg.

Some analysts questioned the wisdom of giving up the strong, profitable cash flows from directories despite Verizon's need to bolster its finances as it replaces its copper phone lines with speedy fiber-optic cables and invests in its fast-growing Verizon Wireless venture. The company also faces a substantial investment upgrading and integrating with MCI's national network to compete in the lucrative corporate services market.

Shares of Verizon, down more than 20 percent so far this year, fell 16 cents to close at $31.71 yesterday on the New York Stock Exchange.

A directories sale or spinoff would mirror a move three years ago by another regional Bell, Qwest Communications International Inc., but contrast with the ongoing investment in print and online directories demonstrated by two other Bell rivals.

Last week, AT&T and BellSouth began their new YellowPages.com joint venture after agreeing to merge their online-directories business a year ago. They were undeterred by the rising threat of Google Inc. and other online portals eyeing local searches as a major new source of ad revenue.

John Hodulik, an industry analyst for UBS Investment Research, said Verizon would miss the cash flows from the directories business, estimating a sale would reduce next year's earnings by 33 cents per share to a shade below $2.

"The deal should enable [Verizon] to de-lever its [balance sheet] and could fund a share buyback," Mr. Hodulik said in a note to investors, adding that the company has indicated it may sell some of its local phone operations after the MCI purchase. Verizon "could also use the proceeds to strengthen its wireless position or accelerate its fiber build."