AT&T Inc. (T) agreed to sell a majority stake in its Yellow Pages directory division to Cerberus Capital Management LP for about $950 million as part of an effort to dispose of units that are holding back revenue growth.
AT&T will receive $750 million in cash and a $200 million note, according to a statement from the Dallas-based phone carrier today. AT&T will keep a 47 percent stake in the business, which had about $3.3 billion in revenue in 2011.
The sale lets AT&T, which hung on to its Yellow Pages division as competitors fled the business, to reduce its exposure to a unit facing increasing competition from online rivals Google Inc. (GOOG), Groupon Inc. (GRPN) and Yelp Inc. (YELP) To boost sales, AT&T, the biggest U.S. phone company, is focusing on its mobile- phone business, where it trails Verizon Wireless.
“It is a sensible step,” Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York who rates AT&T shares market perform, wrote in a report. “Unfortunately for AT&T, however, the transaction is barely material, either in the proceeds it returns or in the change it portends to AT&T’s overall growth rate.”
Sales at the Yellow Pages business declined 16 percent last year, compared with revenue growth of about 2 percent for AT&T as a whole. Chief Executive Officer Randall Stephenson said in January that the company was looking “to either divest or restructure low-performing and non-strategic assets.”
The company said it won’t change its earnings forecast or dividend plans as a result of the sale.
The advertising unit publishes about 1,200 Yellow Pages directories in 22 states. AT&T recorded fourth-quarter costs of 48 cents a share to reduce the value of assets of its directory operations. The company’s net loss was $1.12 a share in the quarter.
Private-equity companies have made several investments in Yellow Pages businesses since 2000, drawn by the traditionally steady cash flow. KKR & Co. bought France Telecom SA (FTE)’s PagesJaunes SA in 2006, while Hicks Muse Tate & Furst Inc. and Apax Partners LLP bought BT Group Plc (BT/A)’s Yellow Pages unit in 2001.
Cerberus, a New York-based private-equity firm run by Stephen Feinberg, has been raising money, including a $4 billion flagship fund. Recent investments include the $1.02 billion acquisition with Chatham Lodging Trust (CLDT) of 64 hotels from Innkeepers USA Trust in October.
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