Yellow Pages sale creates $ 1 billion windfall

Telecom shareholders are awaiting a billion dollar windfall from the company after selling $ 2.24 billion of its Yellow Pages directory business to a private equity consortium.

After weeks of negotiations, Telecom announced yesterday that it would sell its directory business to CCMP Capital and the Teachers’ Private Capital pension fund of Canada.

The two companies are said to have beaten three other private equity groups in the competition for directories.

The consortium will pay around 14 times the expected profits this year for the Yellow Pages Group.

This figure is slightly higher than estimates by many analysts, although speculation in the market has cost as much as $ 2.3 billion.

Analysts believe the sale will give Telecom the opportunity to bring in more than $ 1 billion to shareholders.

“You are considering a significant return of capital which must be planned carefully,” Telecom’s chief financial officer, Marko Bogoevski, reportedly said in a briefing yesterday.

Telecom said it will announce the final structure of its capital management plan during its third quarter briefing on May 3.

ABN-Amro Australian analyst Ian Martin said Telecom would have more than $ 1 billion that it could return to shareholders.

The company would use a portion of the proceeds to fund its $ 400 million purchase of Australian network company Powertel and spend around A $ 300 million ($ 347 million) to retain its 19.9% ​​stake in the business. 3G from Hutchison Telecommunication Australia, Martin said.

Mobile phone company Hutchison said it plans to raise up to A $ 2.85 billion, which would allow it to reduce its debt.

But that still left a significant amount of the proceeds from the sale to be used back to shareholders, Martin said.

Telecom chairman Wayne Boyd said the board is confident the transaction reflects the underlying value of the Yellow Pages business.

“This transaction represents an important result for the shareholders,” he said.

Telecom shares closed 11c higher at $ 4.79 yesterday.

Analysts believe Telecom would prefer a share buyback to a special dividend.

“Otherwise, you get a significant drop in earnings per share,” Martin said.

Deutsche Bank analyst Sameer Chopra estimated that Telecom would use the proceeds to reduce debt by $ 280 million so that it can keep earnings before depreciation and interest amortization at 1.8 times.

And while there was pressure for Telecom to invest in the broadband network, planning laws would limit significant increases in that investment.

Martin believes CCMP Capital Asia will likely launch the yellow pages on the stock market in three to four years.

“That would be an obvious exit strategy – prepare it and put it back on the market,” he said.

Telecom spokesman Phil Love said he expected the new owners to be good for the Yellow Pages Group business because of their experience in owning directory businesses elsewhere.

CCMP Asia, in partnership with CVC Asia, acquired Singapore Yellow Pages in 2003.

Telecom also expects to use the services of the Yellow Pages Group after the sale, Love said.

Yellow Pages Group Managing Director Dudley Enoka said CCMP Asia would be of great benefit to Yellow Pages due to its experience in the online search industry.

“Beyond that, there are also tremendous opportunities in wireless and voice delivery,” he said.

Telecom expected the deal to close by the end of April, subject to Overseas Investment Office approval and closing conditions.

The total value of $ 2.24 billion was $ 2.165 billion in cash and approximately $ 75 million in accounts receivable from Yellow Pages Group retained by Telecom.

THE NAMES

Yellow Pages

* The telecoms directory activity.

* It includes print and online versions of the yellow and white pages.

* It has around 600 employees.

* It is expected to earn $ 280 million in the current fiscal year.

CCMP Capital Asia

* Has $ 2.7 billion in capital management.

* Has investments in 24 companies with a transaction value of over US $ 11 billion.

* In partnership with CVC Asia Pacific, bought Yellow Pages Singapore from Singapore Telecom in 2003.

* Was involved in the takeover of Independent Liquor, Godfreys and Waco International.

Private capital of teachers

* Private investment arm of the US $ 85 billion Ontario Teachers’ Pension Plan.

* Has over $ 12 billion in assets.

* Provides capital for large companies and infrastructure assets.


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Marvin M. Moreno

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