In return for the $600 million it plans to pay for McLeodUSA Publishing, international directories business Yell will become the largest independent directories publisher in the U.S. with coverage in 41 states. The deal is contingent upon antitrust approval.
“The acquisition of McLeod represents the first step in executing our strategy of creating the global directories consolidator,’ ” says Lyndon Lea, a partner at Hicks, Muse, Tate & Furst in London. Hicks Muse and Apax Partners acquired Yell from British Telecom in May 2001 for GBP2.14 billion sterling (more than $3 billion, see story p. 36).
The purchase price of $600 million equals 10.3 times Ebitda and tops an earlier bid of $535 million that private equity firm Forstmann Little & Co. made in December for the telephone directory publisher as part of a proposed restructuring plan. Forstmann Little owns 20% of McLeodUSA Inc., the parent of McLeodUSA Publishing Co. However, Forstmann Little’s bid did not include a break-up fee, leaving open the possibility that other bidders would step in. And Yell did.
McLeod USA is a facilities-based telecommunications provider with, as of Sept. 30, 2001, 393 ATM switches, 58 voice switches, 437 collocations, 520 DSLAMs, more than 31,000 route miles of fiber-optic network and 10,700 employees. McLeodUSA is traded on Nasdaq.
Yell operates in the classified advertising market through printed and online media, and includes the U.K. Yellow Pages and Business Pages directories, Yell.com and Talking Pages. The company already had a strong presence in the U.S. through ownership of the No. 1 independent directory publisher, Yellow Book USA.
As the largest directories market in the world, the U.S. was part of Yell’s stated expansion strategy from the start.
“McLeod was a very natural fit to Yellow Book in the USA, Yellow Book being our existing operations. So it’s very complementary from a geographical point of view in that it covers and adds a significant number of states,” says John Davis, CFO of Yell.
McLeod had $303 million in expected revenue for the year ended Dec. 31, 2001. Ebitda was $58 million. McLeod has published 267 directory editions, or 33 million copies, to homes and businesses throughout the Midwest and Rocky Mountain states. The company is based in Cedar Rapids, Iowa.
Since last June, Yell has bought a few titles from a company called CGC for “just short of $10 million. But this is the first acquisition of any note,” said Davis. (CGC is a privately held independent publisher of Yellow Pages directories in the Southeast U.S.)
As part of the agreement with Yell, McLeod will continue to use its brand name on the directories, and the company will maintain a “major employment presence” in Cedar Rapids.
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