* Deal is for $750 mln in cash, $200 mln debt assumption
* Yellow Pages business declining in Internet era
* AT&T will keep 47 pct stake in Yellow Pages unit
By Sinead Carew
April 9 AT&T Inc said on Monday that it
would sell a 53 percent stake in its declining Yellow Pages
business to private equity firm Cerberus Capital Management LP
[CBS.UL} in a deal worth $950 million including debt, allowing
AT&T to focus on its core telephone business.
Once a cash cow for telephone companies, directories have
become much less relevant in recent years as consumers turn to
the Internet to find telephone numbers for businesses.
AT&T Chief Executive Randall Stephenson had said in January
that he would consider selling the dwindling business, which
generated about $3.3 billion in revenue last year.
Under the terms of the deal, AT&T will receive $750 million
in cash, subject to adjustment, and Cerberus will take on $200
million in debt. AT&T will keep a 47 percent stake in the
business, YP Holdings LLC.
AT&T, the second-biggest U.S. mobile service provider, said
it expects the deal to have a minimal effect on 2012 earnings
and does not expect a material gain or loss.
Pacific Crest analyst Steve Clement said it made sense for
AT&T to sell more than half of the Yellow Pages business because
that way AT&T will not have to include the dwindling revenue and
earnings in its financial statements for its operating business.
"It won't be a drag to the revenue and operating earnings any
more," he said.
AT&T shares were down 1.1 percent at $30.60 on Monday
morning on the New York Stock Exchange.
AT&T was constructed from the remnants of the old Bell
Telephone system that had a near-monopoly in the United States
until its government-mandated breakup in to separate companies
in the 1980s.
As consumers have been disconnecting home phones in favor of
cell phones and Internet service in recent years, AT&T now looks
to cell phones, home broadband and television for growth.
While archrival Verizon Communications Inc spun off
its directory business in 2006, AT&T held on to its Yellow Pages
unit in the hope it could generate revenue growth, especially
through its online service, yp.com.
The idea was that the directory unit's local sales force
would give AT&T an advantage as advertising dollars moved from
the phone book to the Internet. Things did not work out that
AT&T's revenue from its directory business fell 16 percent
in 2011 when it posted a loss of $2.27 billion, including a $2.9
billion impairment charge. This compared with a profit of $855
million the year before.
"There may be some regrets there," said Bia/Kelsey analyst
Charles Laughlin, referring to AT&T's decision to hang on to
Yellow Pages. "It doesn't look like a good decision in
Another analyst, Jennifer Fritzsche of Wells Fargo, said in
a research note that the valuation was "sensible" at 2.1 times
her 2012 estimate for earnings before interest, tax,
depreciation and amortization, "given that the directory
business is declining fairly quickly."
The transaction involves about 8,400 employees in the print
and online business. After the deal, AT&T said its telephone
directory business will honor existing union contracts.
The deal includes yp.com and about 1,200 print Yellow Pages
titles that are delivered to about 150 million homes and
businesses in 22 states and the online business. It also
includes the businesses' local ad network, which includes more
than 300 mobile and online publisher websites and the YPmobile
app, which allows users to search local businesses from their