Verizon announced in 2005 that is was exploring strategic alternatives for its Yellow Pages business. Recently on July 7th of this year the said that they would be spinning off their Yellow Pages and Directories business in their Form 10 filing with the SEC. Under the terms outlined in this filing, current Verizon shareholders will receive one share of the new spin off, Directories Corp, for every twenty shares of Verizon that they own along with cash for any fractional shares. As the pending spin off comes closer to reality, let's take a look at how you can benefit from this spin off!

First, let's take a look at what we know. The new spin off would create the world's second largest yellow pages directories publisher in the United States along with the largest yellow pages directory on the Internet. The company's products would include print yellow pages, print white pages, an Internet yellow pages directory (SuperPages.com), and an information directory for wireless subscribers (SuperPages On the Go). These products had an estimated market share of about 72% in the top fifteen metro areas in the U.S. We also know that the company makes 90% of its revenues from sale of advertising in print yellow pages, 4% from sale of advertising in print white pages, and 6% from Internet Yellow Pages advertising. Finally, the Form 10 filing also noted a pro forma net income of over $1 billion and strong cash flows but also warned of "substancial debt". This debt includes a note receivable from Verizon of $507m and the issuance of up to $9.1b in debt comprised of senior term loans and other debt securities. More of the financial information can be found in the Form 10 filing.

Next, let's take a look at why the spin-off took place. In the Form 10, the company gave the following reasons:

• Enhance Directories Corp's ability to execute a potential acquisition strategy.
• Permit Directories Corp to enhance the efficiency and effectiveness of equity based compensation.
• To allow each company to determine its own capital structure.
• To allow each company to focus on its own core business.

The first two reasons listed here are of interest - we can see that the company is interested in pursuing a potential acquisition strategy and that the new owners have a big interest in making this happen (as much of their compensation is in equity based compensation, both from this event and from their holdings that came as a result of the VZ spin off itself). By carefully watching insider buying and selling after the sale, we will be able to tell how confident and vested owners are in making this happen. Following insiders, especially when they have a large stake in the success, is always a good idea.

Another advantage of this spin off situation is the fact that the stock is usually undervalued shortly after the spin off occurs. This comes as a result of the spin off process itself - shares of the new company are automatically distributed to all holders of VZ stock. More often than not, these VZ investors are not interested in the new spin off, and therefore immediately sell their shares. Also, some instituational holders are not allowed to hold the new stock. This results in a massive sell off that typically drives the price below its proper valuation.

All of this creates not only a short-term buying opportunity for swing traders, but also may be an opportunity for long-term investors to get in cheaply.