17th May 2005 07:02
Yell Group plc17 May 2005 news release news release news release news release news release For Immediate Release 17 May 2005 Proposed acquisition of TransWestern for $1,575m (£829m) Strengthening Yell's position as a leading independent publisher of directoriesin the USA. Creating substantial value. • Yell Group plc ("Yell") announced today that Yellow Book USA, Inc.("Yellow Book"), its US business, has entered into a definitive agreement forthe purchase (the "Acquisition") of TransWestern Holdings, L.P. ("TransWestern")from Thomas H. Lee Partners, CIVC Partners, LLC and TransWestern's management,for USD 1,575 million (GBP 829 million) in cash. • TransWestern is a leading independent directory publisher in the US.Its extensive footprint in 25 states, including core positions in California andTexas, is strongly complementary to Yellow Book's operations. TransWesternpublishes 332 directories and also offers online yellow pages advertisingservices through WorldPages.com. • John Condron, Chief Executive Officer of Yell Group, said: "We are delighted to have come to agreement with TransWestern, which we havelong identified as a unique acquisition opportunity among US independentdirectory publishers. This acquisition establishes Yell as the third largestdirectory publisher globally. TransWestern significantly expands and enhancesour US platform for future organic growth, brings the potential for materialsynergies and strengthens our Yellow Book brand, the only national yellow pagesbrand in the US. It is value creating in its own right and it enables us tocontinue to drive up Yell Group's overall earnings growth." • John Davis, Chief Financial Officer of Yell Group, said: "TransWestern strengthens Yellow Book's ability to take advantage of thecontinuing share-shift in the US from incumbent to independent directorypublishers and combines this with strong acquisition synergies. The acquisitionwill be earnings enhancing in the first full financial year post completion. Thefinancing structure ensures an efficient balance sheet, and we are confident ofthe strength of the free cash flows the enlarged group will deliver." Strategic rationale • This Acquisition continues Yell's strategy of developing asubstantial presence in the fast-growing US market and expanding Yell's platformfor future organic growth. As with its previous acquisitions, the TransWesternplatform should enable Yellow Book to further enhance future organic growththrough a combination of same market growth and new launches. • The Acquisition establishes Yellow Book as the fifth largestdirectory publisher in the US, based on combined revenues in the region of USD1.5bn for the 2004/05 financial year, and further strengthens its position as aleading independent directory publisher in the US. • TransWestern complements Yellow Book's footprint by addingestablished positions in the Northwest, West and Southwest regions, and isparticularly complementary in California, Texas and Florida. • Yell expects that combining Yellow Book and TransWestern'soperations will create significant value through operational synergies,increased opportunity for cost-effective launches and revenue enhancement. Financial impact • For the financial year ended 31 December 2004, TransWesternreported, under US GAAP, revenue of USD 358 million and EBITDA of USD 99.3million. • Yell expects the Acquisition to deliver annualised synergies ofapproximately $69 million in the third full year of ownership. In theintervening period 2006/07 and 2007/08, annualised synergies will beapproximately $36 million and $53 million, respectively. These synergies areexpected to result from sales, procurement and production efficiencies and morecost-effective overhead and back office functions. • In order to drive revenue growth, Yell plans annual investments inmarketing support and additional distribution of approximately $13m in the 2005/06 financial year, rising to approximately $20m in the 2006/07 financial year,and maintained at that level thereafter. Additionally, Yell will harmoniseYellow Book and TransWestern's customer payment terms. This will be achievedthrough working capital investments in the 2005/06 and 2006/07 financial years. • Yell expects the Acquisition to be broadly earnings neutral for theremainder of the 2005/06 financial year and earnings enhancing in the first fullfinancial year following completion. • On a combined basis, the enlarged Yell Group would have generatedapproximately 55% of its revenue and 48% of its EBITDA from US operations in the2004/05 financial year, compared to approximately 48% of revenue and 40% ofEBITDA on a standalone basis in the same year. The increased proportion ofrevenue from the higher growth US operations will drive the Group's earningsgrowth at a higher rate over the next few years. • The return from the Acquisition is expected to be in excess ofYell's cost of capital of 8.5% and therefore will be value enhancing. Financing • Yell has agreed a new £2bn credit facility, fully underwritten byABN AMRO, BNP Paribas, Citibank, HSBC and JPMorgan Chase. This refinances all ofYell's existing bank debt, as well as funding the Acquisition. • Based on Yell and TransWestern's strong cash generation, Yellexpects to reach a target leverage of 4.0x net debt/EBITDA by 31 March 2006,assuming a full twelve months contribution from TransWestern. Integration • Yellow Book and TransWestern's combined businesses publish 897directories in 45 states plus Washington DC, with a total circulation ofapproximately 100 million directories. • The enlarged Yellow Book group will employ approximately 6,000 salesexecutives. • Yell's management has extensive experience of successful acquisitionintegration and will lead the integration of TransWestern's operations intoYellow Book's business. • Yell has completed 26 US acquisitions since 1999, including McLeodand National Directory Company in 2002 and more recently Feist in 2004. Conditions to closing • The Acquisition is conditional on approval by Yell shareholders andis subject to Hart Scott Rodino notification. Yell financial results for the year ended March 31, 2005 • Yell is today publishing its preliminary results for the year ended31st March 2005 in a separate announcement. • Within these results, Yellow Book delivered 22.3% revenue growth to$1,149m and adjusted EBITDA growth of 38.9% to $300 million in the 2004/05financial year. Background information • The US yellow pages industry is estimated to have grown at a c. 5%CAGR in value over 1998-2004 to reach c. $15bn in 2004(1). Independent yellowpages publishers have grown at a c. 14% CAGR over the period and currentlyaccount for over 15% of the total market in value(1). • Yell's strategy has been to complement its leading UK position byestablishing a strong foothold in the US, initially through the acquisition ofYellow Book USA in August 1999. • Yell subsequently expanded its position as a leading independentdirectory publisher in the US through the acquisition of, inter alia, McLeod inApril 2002, National Directory Company in December 2002, and Feist in March2004. • Yell's US operations have achieved strong organic growth in the USthrough a combination of same market growth and new launches. • Over the five years since it entered the US, Yell's US operationshave delivered a 37% compound annual growth rate ("CAGR") in revenue and a 64%CAGR in adjusted EBITDA. During this period, the EBITDA margin has risen from12.7% to 26.1%. (1) Source: Veronis Suhler Stevenson's "2004 Communication Industry Forecast &Report" Information on Yell • Yell is an international directories business operating in theclassified advertising market through printed, online and telephone-based media. • In the year ended 31 March 2005, Yell published 111 directories inthe United Kingdom and 565 in the United States; in the United Kingdom, where itis a leading player in the classified advertising market, it served 501,000unique advertisers. In the United States, where it is a leading independentdirectories business, it served 455,000 unique advertisers. • Yell's brands in the United Kingdom are Yellow Pages, BusinessPages, Yell.com and Yellow Pages 118 24 7, and in the United States are YellowBook and Yellowbook.com, all of which are trademarks. Information on TransWestern • With headquarters in San Diego, California, TransWestern is aleading independent yellow pages publisher in the United States, with 332directories distributed in 25 states. • For the financial year ended 31 December 2004, TransWesternreported, under US GAAP, revenue of USD 358 million, EBITDA of USD 99.3 million,profit before tax of USD 26.6 million and negative net assets of USD 492million. • Total circulation of directories was 24.7 million books as at 31December 2004. • TransWestern had 2,528 employees as at 31 December 2004. • Further financial information, including an accountants' report onTransWestern, will be included in the Circular. Additional information Rothschild is acting as sole financial adviser to Yell in relation to theAcquisition. Merrill Lynch is broker to the transaction. A circular (the "Circular") giving further details of the Acquisition andcontaining a notice of an extraordinary general meeting ("EGM") of Yell toapprove the Acquisition will be sent to shareholders in the near future. Enquiries Yell • Jill Sherratt: +44 (0) 118 950 6984 / +44 (0) 7764 879808 (mobile)• Jon Salmon: +44 (0) 118 950 6656 Rothschild • Warner Mandel: +44 (0) 20 7280 5000• David B. Peterson: +1 (212) 403 3675 Merrill Lynch • Mark Astaire: +44 (0) 20 7628 1000• Tony White: +44 (0) 20 7628 1000 Citigate Dewe Rogerson • Anthony Carlisle: +44 (0) 20 7638 9571• Michael Berkeley: +44 (0) 20 7638 9571 Yell will brief analysts today at 9am on both its financial results for the yearended 31st March 2005 and the proposed acquisition of TransWestern. Details willbe circulated. N M Rothschild & Sons Limited ("Rothschild") is acting for Yell in connectionwith the Acquisition and no one else and will not be responsible to anyone otherthan Yell for providing the protections offered to clients of Rothschild nor forproviding advice in relation to the Acquisition. Merrill Lynch International is acting exclusively for Yell in connection withthe Acquisition and for no one else and will not be responsible to anyone otherthan Yell for providing the protections afforded to its clients or for providingadvice in relation to the Acquisition. This news release contains forward-looking statements. These statements appearin a number of places in this news release and include statements regarding ourintentions, beliefs or current expectations concerning, among other things, ourresults of operations, revenue, financial condition, liquidity, prospects,growth, strategies, new products, the level of new directory launches and themarkets in which we operate. Readers are cautioned that any suchforward-looking statements are not guarantees of future performance and involverisks and uncertainties, and that actual results may differ materially fromthose in the forward-looking statements as a result of various factors. Youshould read the section entitled "Risk Factors" in Yell Finance B.V.'s 31 March2004 annual report on Form 20-F filed with the US Securities and ExchangeCommission (the "SEC") on 8 June 2004, for a discussion of some of thesefactors. We undertake no obligation publicly to update or revise anyforward-looking statements, except as may be required by law. Any statement to the effect that the Acquisition is expected to be earningsenhancing for Yell should not be interpreted to mean that the earnings per sharein the financial year following the Acquisition, or in any subsequent period,will necessarily be greater than those for any completed financial period. A copy of this release can be accessed at: www.yellgroup.com/announcements Our subsidiary, Yell Finance B.V., is expected to furnish its results for the year ended 31 March 2005 to the SEC on Form 20-F in June 2005. A copy of this filing can also be accessed on the Yell Group website. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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