This excerpt taken from the VZ 8-K filed May 13, 2009.
Item 1.01. Entry into a Material Definitive Agreement.
On May 13, 2009, Verizon Communications Inc. (Verizon), New Communications Holdings Inc., a wholly-owned subsidiary of Verizon (Spinco), and Frontier Communications Corporation (Frontier) entered into an Agreement and Plan of Merger (the Merger Agreement) and Verizon and Spinco entered into a Distribution Agreement (together with the Merger Agreement, the Agreements) pursuant to which, following a series of transactions, Frontier will become the owner of Verizons local exchange and related business assets in predominantly rural areas in 14 states.
The assets are located in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, and also include a small number of exchanges in California, including those bordering Arizona, Nevada and Oregon (collectively, the West Area). The transaction includes Verizons switched and special access lines in the West Area, as well as its fiber-to-the-premises assets, Internet service, and long-distance voice accounts that Verizon served in the West Area before the 2006 merger with MCI, Inc. (collectively, the Transferred Assets).
As of December 31, 2008, Verizons properties in the West Area served approximately 4.8 million local access lines; approximately 2.2 million long-distance customers; approximately 1.0 million high-speed data customers, including approximately 110,000 FiOS Internet customers; and approximately 69,000 FiOS TV customers. The transaction does not include the services, offerings or assets of Verizon Wireless, Verizon Business (former MCI, Inc.), Federal Network Systems LLC, Verizon Network Integration Corp., Verizon Global Networks Inc., Verizon Federal Inc. or any other Verizon businesses in the West Area. Verizon Business is retaining contracts with its customers in these states and will purchase local exchange services from Frontier in order to serve these customers.
Subject to the terms and conditions of the Agreements, Verizon will transfer the Transferred Assets to entities owned by Spinco. Spinco will incur newly issued debt, and will then be spun off to Verizons stockholders and immediately merged with and into Frontier. When the merger is completed, the companies conducting the West Area telephone and related business operations will be subsidiaries of Frontier, and approximately 11,000 current Verizon employees whose primary jobs are to support the Transferred Assets will continue as employees of the transferred business.
Upon the closing of the merger, assuming a Frontier stock price of $7.75 per share and no closing adjustments, Verizon stockholders will receive one share of Frontier stock for approximately every 4.2 shares of Verizon stock held as of the record date and will own approximately 68 percent of Frontier, and current Frontier stockholders will own approximately 32 percent. Verizon will not own any shares in Frontier after the merger. The number of Frontier shares to be received by Verizon stockholders is subject to a collar mechanism and certain other possible closing adjustments. The exchange ratio will only be definitively established immediately prior to the closing and will be determined based upon the trading price of Frontier common stock during a pre-closing measuring period and based upon the total number of Verizon shares outstanding at that time. Both the spin-off and merger are expected to qualify as tax-free transactions, except to the extent that cash is paid to Verizon stockholders in lieu of fractional shares.
The total value to be received by Verizon and its stockholders in exchange for these operations will be approximately $8.6 billion. Verizon stockholders will receive approximately $5.3 billion of Frontier common stock in the merger, assuming current share prices and no closing adjustments. Verizon will receive approximately $3.3 billion in value through a combination of cash distributions to Verizon, debt securities issued to Verizon prior to the spin-off and assumption of certain debt previously issued by Verizons telephone company subsidiaries. Verizon may exchange these newly issued debt securities for certain debt that was previously issued by Verizon, which would have the effect of reducing Verizons then-outstanding debt on its balance sheet.
Consummation of the transactions contemplated in the Agreements is subject to customary closing conditions, including: (i) approval by Frontiers stockholders; (ii) transfer of the Transferred Assets into Spinco; (iii) expiration or termination of the applicable Hart-Scott-Rodino waiting period and receipt of Federal Communications Commission, state commission and certain other regulatory approvals; (iv) absence of any law or order prohibiting the consummation of the transactions; (v) the obtaining of financing by Frontier consistent with certain terms, (vi) subject to certain exceptions, the accuracy of representations and warranties; and (vii) absence of a material adverse effect on Frontier or Spinco or their respective businesses.
The Merger Agreement contains certain termination rights for each party and further provides that, upon termination of the Merger Agreement under specified circumstances, Frontier may be required to pay Verizon a termination fee of $80 million.