Verizon Wins Ruling in $9.5 Billion Lawsuit Over SpinoffDavid McLaughlin and Tom Korosec
Verizon Communications Inc. will likely win a lawsuit over the 2006 spinoff of its directory business, a federal judge said after rejecting claims that the business was insolvent at the time of the deal.
The unit, Idearc Inc., had a value of at least $12 billion, and the “only credible evidence” shows the business was solvent when it was spun off, U.S. District Judge A. Joe Fish in Dallas said in a decision yesterday.
Fish ordered U.S. Bancorp, which sued Verizon on behalf of Idearc creditors, to explain why its claims are viable following the ruling on valuation. The judge said it “appears” creditors will be unable to prove their case “so that all of the plaintiff’s remaining legal claims will fail.”
Now named SuperMedia Inc., Idearc completed a bankruptcy reorganization that created a trust to bring lawsuits on behalf of creditors with claims of about $6 billion, according to court papers. Creditors contend the spinoff, designed to generate $9.5 billion for Verizon, left Idearc with so much debt it was insolvent and destined to collapse. It filed for bankruptcy 28 months after the spinoff.
The lawsuit against New York-based Verizon went to trial in October and included testimony from former Verizon chairman and chief executive officer Ivan Seidenberg.
At the trial, Werner Powers, an attorney for Idearc creditors, said that Verizon loaded Idearc with debt and “sent it into the market to die.” He said the directory business was suffering double-digit declines in major urban markets, which was a “canary in the mine shaft” that he said the company hid from investors.
Verizon attorney Reid Figel argued at the trial that the company wasn’t insolvent at the time of the spinoff and had been valued by Wall Street analysts at $12.5 billion to $14.5 billion.
In his ruling, Fish rejected the testimony of Carlyn Taylor, an expert witness for creditors, that Idearc’s value was $8.15 billion, calling her valuation an “outlier.”
“We are gratified that the court found no evidence to sustain the trustee’s allegations,” Verizon spokesman Bill Kula said in a statement. “We look forward to the final resolution of this matter in the near future.”
Powers said in an e-mail that he hadn’t reviewed Fish’s decision.
The case is U.S. Bank National Association v. Verizon Communications Inc., 10-01842, U.S. District Court, Northern District Texas (Dallas).