FOR IMMEDIATE RELEASE:
July 28, 2004
R.H. Donnelley to Acquire SBC Communications' Directory Publishing
Business in Illinois and NW Indiana for $1.45 Billion
CARY, N.C. -- Completes Transformation to Owner/Publisher; Transaction Immediately Accretive to Cash Flow.
R.H. Donnelley Corporation (NYSE: RHD), a leading yellow pages publisher and directional media company, today reported that it has signed a definitive agreement to acquire SBC Communications Inc.'s (NYSE: SBC) directory publishing business in Illinois and Northwest Indiana, including SBC's interest in the DonTech partnership, for $1.42 billion in cash, after the settlement of a $30 million liquidation preference related to DonTech. DonTech is the existing partnership between SBC and RHD for local sales into the Illinois and Northwest Indiana SBC yellow pages. Under the terms of the transaction, RHD will receive a 50-year exclusive license to publish the SBC branded directories in Illinois and Northwest Indiana. RHD and SBC also signed a separate five-year agreement under which RHD will sell local advertising onto SMARTpages.com in Illinois and Northwest Indiana. Upon completion of the transaction, RHD will control and publish 389 yellow page directories serving more than 260,000 local and national advertisers.
"This important acquisition completes our strategic transformation to a fully integrated yellow pages publishing and directional media company from a sales agent and pre-press publishing vendor," said David C. Swanson, RHD's Chairman and Chief Executive Officer. "Consistent with our strategy, we'll now control all our assets, enabling us to direct all aspects of our business and better positioning us to create long term value for shareholders." Swanson continued, "Illinois, and Chicago in particular, are important markets for RHD. The Donnelley name has been synonymous with yellow pages in these markets since Reuben H. Donnelley published the first yellow pages directory almost 120 years ago."
The acquired business will be integrated into Donnelley Media alongside the former Sprint Publishing and Advertising business acquired last year. Donnelley Media is led by industry veteran Peter J. McDonald. Prior to re-joining RHD in 2002, McDonald was President of SBC Directory Operations and also served as President of DonTech, RHD's partnership in Illinois with SBC, in the mid-1990s. Swanson added, "Peter is uniquely suited to lead this business, given his 30-plus years in the directory publishing industry and hands-on experience with DonTech. He knows the markets and the operation well, and led the highly successful integration of the Sprint business last year. Peter's leadership gives me great confidence for the integration and prospects for improved performance of the acquired business."
Following the acquisition, RHD expects to have pro forma 2004 consolidated adjusted revenue and EBITDA of approximately $1.0 billion and $586 million, respectively, assuming a January 1, 2004 close. On a GAAP basis, 2004 revenues are expected to be approximately $600 million, with corresponding operating income of approximately $283 million. As with the Sprint transaction, due to the impact of purchase accounting, the Company will not record revenues from directories published prior to closing. However, RHD will be purchasing and expects to collect billed and unbilled customer receivables related to SBC's directory business in Illinois and Northwest Indiana. Following the closing, the Company will publish 389 directories, including 129 SBC directories in Illinois and Northwest Indiana and 260 Sprint yellow pages directories in 18 states with total circulation of over 28 million serving more than 260,000 local and national advertisers.
The acquisition is expected to be immediately accretive to RHD's cash flow. The net purchase price represents approximately 8.3x acquired 2004 EBITDA. RHD expects to get a full tax basis step-up as a result of the acquisition structure. Leverage immediately following the transaction will be approximately 5.8 times pro forma adjusted 2004 EBITDA. Steven M. Blondy, RHD's Senior Vice President and Chief Financial Officer, said, "This transaction further enhances our revenue, EBITDA and cash flow base and should create substantial shareholder value. In addition, we intend to make the necessary investments in sales and marketing to improve performance in these attractive yellow page markets while maintaining our commitment to financial discipline."
The Company has received financing commitments from a group of banks led by J.P. Morgan Securities Inc. and Bear, Stearns & Co., Inc. The transaction is expected to close in the third quarter of 2004 subject to regulatory approval and certain closing conditions.
Reconciliation of Non-GAAP Financial Measures
All non-GAAP financial measures mentioned in this release are reconciled to the most comparable GAAP measures within the attached schedules.
Investor Teleconference
RHD will hold a conference call tomorrow, July 29, 2004 at 9:00 am EST to discuss this announcement. The call can be accessed by dialing 888-387-9606 (domestic) or 484-630-7198 (international). The passcode for the call is "RHD". Please dial in to the call by 8:50 a.m. The call will also be available through a Webcast, which can be accessed by visiting our Web site at www.rhd.com, clicking on "Investor Information" and following the instructions provided. Those unable to participate at the scheduled time may access a recording by dialing 866-441-8821 (domestic) or 203-369-1062 (international). The recording will be available through August 10, 2004. There is no passcode for the replay.
About R.H. Donnelley
R.H. Donnelley is a leading yellow pages publisher and directional media company. Directional media is where consumers go to find who sells the goods and services they are ready to purchase. R.H. Donnelley publishes approximately 260 directories under the Sprint Yellow Pages(R) brand in 18 states, with major markets including Las Vegas, Orlando, and Lee County, Florida. The Company also offers online city guides and search web sites in these major markets under the Best Red Yellow Pages brand at www.bestredyp.com. In addition, R.H. Donnelley serves as the exclusive sales agent for 129 SBC directories under the SBC Yellow Pages(R) brand in Illinois and northwest Indiana through DonTech, its perpetual partnership with SBC. Including DonTech, R.H. Donnelley serves more than 260,000 local and national advertisers. For more information, please visit R.H. Donnelley at www.rhd.com.
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