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Home / Business / Companies / Telecommunications

Yellow Pages sale sets up $1b windfall

By Jenny Keown
26 Mar, 2007 05:00 PM4 mins to read

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KEY POINTS:

Telecom shareholders are in line for a billion dollar windfall from the company after the $2.24 billion sale of its Yellow Pages directories business to a private equity consortium.

After weeks of negotiations, Telecom said yesterday it would sell its directories business to CCMP Capital and the Teachers'
Private Capital pension fund, from Canada.

The two firms are understood to have beaten three other private equity groups in the competition for the directories business.

The consortium will pay about 14 times this year's expected earnings for the Yellow Pages Group.

This is slightly higher than many analysts' estimates, although market speculation was of a price up to $2.3 billion.

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

"You are looking at a sizeable return of capital that needs to be planned carefully," Telecom's chief financial officer Marko Bogoevski reportedly told a briefing yesterday.

Telecom said it would announce the final structure of its capital management plan at its third-quarter briefing on May 3.

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

The company would use some of the proceeds to finance its $400 million purchase of Australian network company Powertel, and would spend about $A300 million ($347 million) to retain its 19.9 per cent stake in Hutchison Telecommunication Australia's 3G business, said Martin.

Mobile phone company Hutchison has said it planned to raise up to $A2.85 billion in a move that would enable it to reduce debt.

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

Telecom chairman Wayne Boyd said the board was satisfied that the transaction reflected the underlying value of the Yellow Pages business.

"This transaction represents a significance outcome for shareholders," he said.

Telecom's shares closed up 11c at $4.79 yesterday.

Analysts believe Telecom would prefer a share buy-back to a special dividend.

"Otherwise you get a major step down in earnings per share," said Martin.

Deutsche Bank analyst Sameer Chopra believed Telecom would use the proceeds to reduce debt by $280 million so it could maintain earnings before interest depreciation and amortisation at 1.8 times.

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

Martin believes CCMP Capital Asia is likely to float the Yellow Pages on the stock exchange in three to four years.

"It would be an obvious exit strategy - gear it up and put it back on the market," he said.

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

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

Telecom also expected to use services from the Yellow Pages Group after the sale, said Love.

Yellow Pages Group general manager Dudley Enoka said CCMP Asia would be of great benefit to Yellow Pages because of its experience in the online search industry.

"Beyond that there are also considerable opportunities in wireless and voice delivery," he said.

Telecom expected that the deal would be done 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 about $75 million of Yellow Pages Group debtors retained by Telecom.

THE NAMES

Yellow Pages


* Telecom's directory business.

* It includes printed and online versions of the Yellow and White pages.

* It has about 600 employees.

* It is forecast to earn $280 million in the current financial year.

CCMP Capital Asia

* Has $2.7 billion in capital management.

* Has investments in 24 companies with transaction value of more than US$11 billion.

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

* Was involved in the buy-out of Independent Liquor, Godfreys, and Waco International.

Teachers' Private Capital

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

* Has more than $12 billion in assets.

* Provides capital for large companies and infrastructure assets.

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