Shares in Yellow Media tumbled nearly 40% in early trading Wednesday after the company said it would book a $2.9-billion goodwill impairment charge in the third-quarter and stop paying out future dividends.
The company’s stock was down 22.5 cents to 34 cents on the Toronto Stock Exchange shortly after the market opened.
The drop came as the media company said a review of its operations concluded that its assets are worth less than previously thought.
The review uncovered a variety of factors that contributed to the charge, including a drop in Yellow Media’s share price on the stock market and earnings pressure from its rapid shift to digital platforms from printed media.
President and CEO Marc Tellier told analysts in a conference call that it was a “prudent” decision to eliminate the dividend and is in the best interests of the company’s financial risk profile.
“The cash retained will be used to reduce indebtedness,” he said. “With these decisions regarding our capital structure and dividend policy, we can devote our time and efforts on our business transformation, all the while reinforcing our financial foundation.”
With the money saved by halting the dividend payments, the company expects to reduce its debt by about $700 million during the quarter.
Yellow Media has been struggling to migrate its operations to digital phone directories from traditional printed phone books while also dealing with its debt.
The company also said it is uncertain about when new products will be introduced and whether they will offset declining print revenues and lower margins from recent business acquisitions.
But Tellier said he still believes in Yellow Media’s transformation to a digital company.
“Our message today is one of conviction – that we have the right strategy and focus around our business transformation. We believe we have to take a more conservative approach to managing our capital structure, focusing on long-term value creation while preserving financial flexibility to transform our business.”
The charges will logged for the third quarter ending Sept. 30.
The company said its previously announced 2.5-cent dividend payable on Oct. 17 will be the last payout for the foreseeable future. In August, Yellow Media had cut its dividend to 15 cents a share from 65 cents annually in a move to reduce debt and improve its balance sheet.
Yellow Media is the largest telephone directory publisher in Canada. Online properties comprise the YellowPages.ca and Canada411.ca online telephone directories, and the CanadaPlus.ca group of major Canadian city websites.
Print directories include 340 telephone directories published annually for Bell Canada, Telus, Bell Aliant, MTS Allstream and other telephone companies.
Earlier this month, chief financial officer Christian Paupe stepped down “to pursue other interests.”
