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).
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