AT&T on Monday said it agreed to sell a majority stake in its U.S.-based Yellow Pages business to the private-equity firm Cerberus Capital for $950 million.
The sale is part of AT&T’s strategy to jettison shrinking parts of its business so it can focus on segments that are growing, particularly its wireless business. Revenue from the Yellow Pages unit has shrunk 30% in two years, as consumers continue to shun phone books in favour of the web.
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Phone books were once a cash cow, generating reliable profits as businesses paid for ads that were right under consumer’s finger tips as they were looking for local stores and services. Even with the steep revenue decline, AT&T’s Yellow Pages unit has been profitable before impairment charges for the last three years.
Profitable but shrinking businesses generally sit poorly with public companies who want to show shareholders that they’re growing. Private-equity firms don’t have to please public shareholders and are happy to make money from dwindling assets.
AT&T, the largest U.S. phone company, is following in the footsteps of Verizon Communications, the second-largest, in cutting its exposure in the phone book business. Verizon spun off its directory business to shareholders in 2006, only to see it file for bankruptcy three years later.
Cerberus is paying AT&T $750 million in cash and a $200 million note, plus a 47% stake in YP Holdings LLC, which will oversee the business.
Sanford Bernstein analyst Craig Moffett said the sale price was low relative to Yellow Pages’ earnings, but the deal is still a sensible one for AT&T, in terms of its strategy.
