Dex One, the Cary-based yellow pages publisher that is merging with SuperMedia, said in a regulatory filing Thursday that the two companies may have to file for bankruptcy if they can’t reach agreements with all of their lenders.
Dex and SuperMedia are negotiating with those lenders to push out the maturity dates of their debt by two years to December 2016. The companies need 100 percent of their lenders to agree to the restructuring before they can complete the deal.
Dex CEO Alfred Mockett said Thursday that a prepackaged bankruptcy is just one alternative under consideration if a majority – but not all – of the lenders agree to the extension. He said both companies remain committed to the deal.
“We think it is in the best interest of the constituencies of both companies to complete this transaction,” he said. “… We believe it creates additional investor value, and it creates greater certainty of recovery of the cash for our debt holders.”
Mockett said the discussions with lenders are complicated by the sheer number of debt holders as well as the complex capital structure of both companies.
Dex and Dallas-based SuperMedia both filed for bankruptcy in the wake of the recession and emerged with new names and lower – but still considerable – debt. The combined company, which is to be based in Dallas, will still have $3.4 billion in debt – $2 billion from Dex and $1.4 billion from SuperMedia.
“All this makes the discussions very complex and takes time,” Mockett said. He said the discussions would likely push the completion of the merger into the first quarter of next year.
Investors reacted negatively to the news. Dex shares closed down 29 cents Thursday at $1.02.
Dex also reported Thursday that third-quarter ad sales fell 14 percent, equal to its earlier forecast. Ad sales, a leading indicator of future revenue, consists of ads in print directories distributed or digital ads published online during the quarter.
Bookings for the quarter declined 13 percent overall, but digital bookings rose 26 percent. Bookings, another leading indicator of future revenue, represent contracts signed during the quarter. Revenue in the third quarter declined 11 percent to $319.7 million.
Dex publishes more than 800 yellow pages directories, while SuperMedia publishes more than 1,000. Dex and SuperMedia have both been expanding their digital advertising business, but that segment isn’t growing fast enough to compensate for declining print revenue.
Mockett said restructuring the debt is crucial because it will give the merged company time to reach the point where increasing digital sales offset declining print sales. Mockett plans to stay on until the merger is completed. The new company, to be called Dex Media, will be led by SuperMedia CEO Peter McDonald.
SuperMedia has 800 workers in Dallas while Dex has about 165 workers at its Cary headquarters and 300 overall in the Triangle. The merger is expected to trigger cutbacks of 10 percent to 15 percent of the workforce.
The companies expect that layoffs and other cost-saving measures will generate savings of $150 million to $175 million by 2015.