AT&T Inc. on Monday agreed to sell a majority stake in Yellow Pages, the publisher of the once-popular directories of phone numbers, to Cerberus Capital Management for $950 million.
“This transaction makes strategic sense for both AT&T and Advertising Solutions,” said Jose Gutierrez, president and CEO of AT&T Advertising Solutions. “It enables AT&T to focus on its core strategy of leadership in wireless, IP, cloud- and application-based services.”
The deal is expected to close by the middle of the year.
Cerberus will take over a 53 percent stake in the company, while AT&T will retain 47 percent ownership, along with $750 million in cash and a $200 million note.
Yellow Pages could have sold for three to four times more just a few years ago, analysts say, but AT&T waited too long to sell.
“I think if you sold it several years ago, the price would have been quite a bit higher,” BIA/Kelsey analyst Charles Laughlin said. “Telecom used to get more.”
The digital side of the business listings industry has been eating away at the print phone directory market. Yellow Pages is still valued higher than online competitors like Yelp and Angie’s List, but the gap is closing.
Revenue in the worldwide yellow page industry is down 27 percent from 2007’s $32 billion to $23.3 billion last year, according to a new BIA/Kelsey study.
Moving forward, Cerberus will focus on the digital nature of the business, the source familiar with the situation said.
“The future is in digital,” said the source, who could not be named, because the deal has not yet been finalized. “Print will decline over time.”
This seems to be the focus of the entire industry. In 2011, 30 percent of revenue came from digital sources, up from 12 percent in 2007, according to the study.
“They need to get more growth out of their digital products for their business to have a strong future,” Mr. Laughlin said.
Yellow Pages already has a significant digital presence, the source said, pointing out that YP.com is ranked among the top 35 websites and is one of the best for local marketing.
“It’s not about print,” the source said. “We can still make money on this deal even if digital doesn’t take off (anymore than it already has). It’s already doing well.”
Cerberus won’t give up on the print business entirely, but the company doesn’t expect it to be around forever. “The question is, ’Can they make it last longer?’ ” the source said.
The fact that AT&T retained a minority stake in the company shows that it still believes in the business, Mr. Laughlin said, but doesn’t want to manage the day-to-day operations anymore.
“It seems to be an indication that they don’t think the business is going away anytime soon,” he said. “I don’t know why they’d hang onto a piece of the business, unless they thought it would turn around. They, apparently, believe there’s still some life there.”
The person familiar with the situation compared Yellow Pages to a “stepchild” that AT&T “doesn’t want to be bothered with” anymore, because it is not one of the company’s core businesses.
They “can’t afford to focus on” it, the source said. “It’s just a pain in the neck for them. It’s a distraction.”
But the source cautioned that AT&T still believes the business has a bright future in digital. “They want to own as much as they possibly can of it.”
Cerberus is known as a turn-around specialist.
“What they do for a living is go in and restructure,” the source said. “They do that like plumbers fix leaky pipes.”
• Tim Devaney can be reached at tdevaney@washingtontimes.com.
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