Verizon Communications, Inc. (NYSE:VZ) said that it would be spinning off its phone operations in less populated portions of New England and combine the assets with FairPoint Communications, Inc. (NYSE:FRP) in a deal worth around $2.7 billion. Under the agreement, Verizon would spin off its phone operations in Vermont, Maine, and New Hampshire and then merge the new entity with FairPoint. Ownership in the new entity would be divided between the two companies, with VZ maintaining a 60% stake and FRP holding a 40% stake. Meanwhile, the new entity would also take on about $1.7 billion of Verizon debt.

FairPoint shares moved up $2.15, or 11.6%, to $20.69 in early trading on the news. CEO Eugene Johnson said in an interview on CNBC that he believed the transaction would strengthen the company's presence in rural areas. In a statement, FairPoint said it would invest more money in its New England operations and expand high-speed Internet access to more customers. Meanwhile, Verizon said that it would use the money to strengthen their balance sheet and pay off some of its outstanding debt.

Spin offs also represent a great opportunity for shareholders to make money. On the average, spin-offs outperform the overall market, a phenomena so popular that there is now an ETF focusing on this exact strategy! This occurs because parent company shareholders tend to sell their shares immediately after receiving their distribution, thereby creating a downside pressure that has no fundamental justification.

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