Qwest to sell yellow pages division
Wednesday, August 21, 2002
DENVER -- Qwest Communications International Inc. said Tuesday it was selling its yellow pages business for more than $7 billion to help the heavily indebted communications giant stave off bankruptcy.
Cash raised from the deal with a group of financiers will be used to pay down some of the company's $26.6 billion in debt.
Qwest shares jumped nearly 32 percent on the news, rising 71 cents to close at $2.95 on the New York Stock Exchange.
Under the deal, QwestDex will be sold to the Carlyle Group and Welsh, Carson, Anderson and Stowe in a two-stage process designed to speed cash to Qwest, which provides local phone service in 14 states and is a leading long-distance provider.
The sale "will allow us to focus on maximizing the profitability of our core operations," said Richard Notebaert, Qwest's chairman and chief executive.
However, the sale will remove a significant source of income, said analyst Drake Johnstone of Davenport & Co. Qwest's directory unit -- the nation's fourth-largest phone directory publisher with a circulation of 45 million -- generated $1.6 billion in revenue last year.
"The problem is over $1 billion in cash flow goes away when they sell the directory business, so their cash flow is reduced substantially and they still have a huge debt load," Johnstone said.
Qwest spokesman Chris Hardman said the company expects to make up for the loss in revenue by increasing profits from core operations including local phone service.
The Denver-based communications giant has been under heavy pressure to pare its debt to avoid violating loan terms that place a ceiling on its total debt.
The Washington, D.C.-based Carlyle Group, chaired by former Defense Secretary Frank Carlucci, is the world's largest private equity group.
Defense and aerospace firms make up a significant share of its portfolio, but the Carlyle Group also has interests in information technology, health care, real estate, and bottling companies. New York-based Welsh, Carson, Anderson & Stowe invests in health care, telecommunications and information services companies.
The first stage of the deal -- involving the sale of QwestDex operations in Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota -- is for $2.75 billion and is expected to close in the fourth quarter of 2002.
The second phase -- which includes Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming -- is for $4.3 billion and is expected to close in 2003.
Qwest reportedly is trying to reach a settlement with the Securities and Exchange Commission, which is investigating how the company accounted for $1.1 billion in revenue over several years.
The company has acknowledged that it discovered accounting mistakes from 1999 to 2001 and expects to restate financial results for 2000 and 2001.
Qwest has 55,000 employees overall, with 2,600 of those working in the QwestDex division, Hardman said. He said whether any QwestDex employees will lose their jobs is up to the buyer.