AT&T to Exit Directory Business - Analyst Blog

By
A A A

AT&T Inc. ( T ), the second-largest U.S. mobile service provider, is seeking to sell a majority stake in its Yellow Pages business to Cerberus Capital Management LP, a private equity firm. The deal had valued the company's telephone directory business at $1.5 billion.

According to a Bloomberg report , AT&T is in negotiation with Cerberus Capital after holding talks regarding the sale of the unit with several buyout firms. The company has hired Citigroup Inc. ( CITI ) and Bank of America Corp. ( BAC ) as financial advisors to access the transaction.

The Yellow Pages business is the part of AT&T's Advertising Solutions segment, which fell 16.3% last year and represented about 3% of the company's revenue. Profitability at the Yellow Pages business had been declining for past several years as the telephone directories have become obsolete due to the changing customer habits. The operations were highly impacted by the online service provides like Google Inc. ( GOOG ), Yelp Inc . ( YELP ) and Groupon Inc. ( GRPN ) that have replaced the concept of printed phonebooks. AT&T recorded $2.9 billion or 48 cents in asset impairments of its directories business in the recently concluded quarter.

AT&T's decision to sell-off Yellow Pages was an outcomes of the company's plans to shed some of its slower-growing assets in the wake of the collapse of its $39 billion-deal to buy T-Mobile USA, one of its major rivals. Now, the company is looking at opportunities to improve its growth profile by divesting or restructuring underperforming or non-strategic assets such as the directory business and rural access lines.

Though this $1.5 billion deal could fall apart, it may become public in the next several weeks. AT&T's directory business is valued at about 1.5 times 2011 EBITDA or 2 times of 2012 EBITDA. The company's major rival Verizon Communication Inc . ( VZ ) had exited its directories business for about  8 times trailing EBITDA in 2006.

Cerberus Capital, which is managed by the billionaire investor Stephen A. Feinberg, said that the Yellow Pages generate substantial cash flow and any growth potential in the business is likely to stem from the company's online and mobile initiatives.

We prefer to maintain our long-term Neutral recommendation on AT&T. The company retains the Zacks # 3 (Hold) Rank for the short term (1-3 months).


 
BANK OF AMER CP ( BAC ): Free Stock Analysis Report
 
GOOGLE INC-CL A ( GOOG ): Free Stock Analysis Report
 
GROUPON INC ( GRPN ): Free Stock Analysis Report
 
AT&T INC ( T ): Free Stock Analysis Report
 
VERIZON COMM ( VZ ): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BAC , GOOG , GRPN , T , VZ

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Russell’s One Good Reason
Russell’s One Good Reason           
Tammy’s One Good Reason
Tammy’s One Good Reason             
Lisa’s One Good Reason
Lisa’s One Good Reason              

Stocks

Referenced

Most Active by Volume

87,324,760
  • $7.31 ▲ 22.04%
79,329,227
  • $17.16 ▲ 0.76%
74,153,988
  • $8.87 ▼ 5.84%
49,177,672
  • $34.01 ▲ 4.39%
44,197,901
  • $101.40 ▲ 1.38%
43,197,735
  • $11.70 ▲ 3.36%
42,712,021
  • $74.99 ▲ 1.19%
42,423,171
  • $108 ▲ 0.95%
As of 10/31/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com