Dex One Corporation
), two of the nation's largest "yellow page" companies, announced
earlier this week that they have filed for Chapter 11 bankruptcy
protection. This is part of a plan to merge into one entity.
According to Dex One's General Counsel Mark W. Hianik, the merger
will result in annual savings of $175 million.
The merger plan, revealed in August 2012, has received support
from shareholders as well as a majority of the company's lenders.
As per the Chapter 11 petition, Dex One has $2.84 billion in
assets and $2.79 billion in debt.
SuperMedia has declared assets of $1.4 billion and $1.9
billion of debt. SuperMedia's Chief Financial Officer has said
that the companies will be able to utilize $1 billion in net
operating losses from Dex One to save around $400 million in
income taxes in the future.
This is not the first time these companies have filed for
bankruptcy. In 2009, SuperMedia filed, emerging only in December
that year, with Dex One following suit the next month. The
single entity formed out of the merger is expected to exit
bankruptcy in 60 days.
What this development draws attention to is the dwindling
fortunes of the yellow pages business. There are several
indications that the directory business is steadily shrinking.
With the proliferation of digital media, the likes of
) have challenged the paper directory business in a manner it is
finding difficult to combat.
For instance, leisure-related searches, such as restaurant
locations, have moved almost completely online. This has led
yellow page companies to invest more in improving their digital
business, through which their customers can have an online
Additionally, many larger companies have sold or spun off their
directories businesses. In fact, the companies in question, Dex
One and SuperMedia were both formed as a result such moves. Dex
One was formed out of the directories businesses of
Sprint Nextel Corp.
) and Qwest Communications, which no longer exists.
Similarly, SuperMedia was created after the directory business
Verizon Communications Inc
), spun off in 2006, went bankrupt in 2009. And last year
) sold a significant portion of its directory business to
Cerberus Capital Management.
In fact, the Verizon spin-off, which is the subject of much
controversy and litigation, provides further evidence. Creditors
of the directory business have claimed that Verizon did not
reveal that the yellow pages subsidiary's revenue had declined in
excess of 10% in major markets. This is because customers were
increasingly opting to advertise online because of the greater
availability of broadband Internet services.
Of course, this is not to suggest that this segment has run out
of steam altogether. In 2011, 422 million yellow page directories
were distributed as per research company Simba Information.
Additionally, directory companies accounted for 7.6% of total
advertising revenue in the U.S. in 2011, taking into account both
print and digital sales. According to market research firm
BIA/Kelsey, $6.9 billion worth of advertising revenue was spent
on yellow pages advertising in the same year.
The opportunity for yellow pages lies with local advertising.
According to BIA/Kelsey, local media advertising revenue is
expected to amount to $148 billion in 2017. This is a 2.3% annual
increase from the $132.5 billion in 2012. These forecasts were
revealed in the market research firm's new report "U.S. Local
Media Forecast (2012-2017)" released on Monday.
Almost all major directory companies now have a significant
online presence. The opportunity lies in expanding this presence
to cater to smaller businesses who lack the know how to advertise
on the Internet. This includes purchasing keywords online, as
well as creating and maintaining their
) pages in addition to the conventional ads in print directories.
Of course, even such a strategy may not be enough to help yellow
pages firms recover, given the competition in the digital space.
This is where the major challenge lies.
According to the new BIA/Kelsey report, the share of digital
advertising expenditure in local markets will increase from 17.4%
in 2012 to 27.6% in 2017. How yellow pages retrain their
employees and garner funds to develop their digital businesses
will be the key to determining their survival and future
DEX ONE CORP (DEXO): Get Free Report
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