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Is Verizon Responsible for Idearc’s Bankruptcy?

Idearc's Bankruptcy Caused by Verizon?My op-ed piece, “Idearc’s Chapter 11 Bankruptcy: Who’s Really Responsible?” published today on Search Engine Land, and in it I put forth my position that Verizon is responsible for spinning off the company with an unreasonably huge debt load, and the people ultimately paying the bill are the stockholders.

I describe in the article how Verizon spun off Idearc Media (division which publishes print phone books and operates Superpages.com among other online yellow pages), and set that company up to pay back some billions of dollars for its worth. Verizon then turned around and resold those debt instruments to other companies, fully divesting itself of ownership in the new, standalone company.

This sequence in of itself isn’t remarkable – it’s the normal process a company might go through when spinning-off part of itself to form a new company.

But, my contention is that it was done so in a highly irresponsible manner. Verizon had to know beforehand that print directory business was going into shrinkage mode, and that the debt repayment structure would simply be too much for the new company to be reasonably expected to be able to handle. If so, then this could be expected to be a form of fraudulent conveyance, and Verizon could be culpable.

Is my contention outrageous?

Well, even Idearc’s Chief Executive, Scott Klein, has been paraphrased by the Wall Street Journal as saying “Everyone was aware that ‘$9 billion was really more debt than this business could bear’”. So, Idearc was spun off with a majority of this debt from Verizon from the start – clearly set up to fail.

So far, I’ve seen maybe three different law firms filing class-action lawsuits against Idearc and its executives, based on the premise that the stock tanked due to them secretly changing policies, resulting in inflated-looking sales on the books for businesses with higher likelihoods of not paying for contracted advertising. But, I think the real culprit in all this is likely Verizon – they pushed off a part of the company with an untenable debt load, in large part to pay off debts incurred by Verizon FiOS (Verizon’s fiber optic network) expansion.

3 comments for Is Verizon Responsible for Idearc’s Bankruptcy? »

  1. MyAvatars 0.2

    it will be interesting to see how all this ends up panning out. Hopefully we will not see a round of large layoffs from them.

    Comment by Nick Stamoulis — 6/24/2009 @ 8:17 am


  2. MyAvatars 0.2

    I have owned ATT/Bell Atlantic/Verizon common stock for approx. 45 years. Received the IDEARC stock and did not pay much attention. Had no idea what happened to IDEARC (Fairpoint) stock. Have not “cashed” this stock, which is now worthless. Should I do anything with all this literature I have been receiving in the mail ?

    Comment by Aro, George (Bud) — 3/29/2010 @ 8:37 am


  3. MyAvatars 0.2

    George, I don’t know what literature you’ve been receiving in the mail, but I assume it was explanations from Idearc (now “Supermedia”) about what was being done with the stock, and/or notices of the various Class Actions on behalf of stockholders.

    I cannot give stock advice, but I can say that I also consider the stock I held to have been made worthless in the Chapter 11 exercise.

    Comment by Chris Silver Smith — 3/29/2010 @ 9:16 am


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