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Spinning Off an Underperforming Division
Recently, Gannett announced that it intended to spin off its publishing business from its faster-growing assets. Such a strategy has become a common way for corporations to address underperforming assets. However, if the newly spun-off company runs into financial difficulties, it can be, and often is, second-guessed by creditors ' and lawsuits can follow. This is precisely the scenario that occurred with Verizon Communications, Inc.'s spin-off of its print and digital directory business.
In U.S. Bank Nat'l Assoc. v. Verizon Comm., Inc., 761 F.3d 409 (5th Cir. 2014), the United States Court of Appeals for the Fifth Circuit addressed a fraudulent conveyance action that arose out of Verizon Communications, Inc.'s (Verizon) spin-off of its print and digital directory business to its wholly owned subsidiary, Idearc, Inc. (Idearc). The Fifth Circuit affirmed the district court's dismissal of an 11-count complaint against Verizon, two Verizon subsidiaries, GTE Corporation (GTE) and Verizon Financial Services, L.L.C. (VFS), and Idearc director John W. Diercksen (Diercksen).
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