Dex One, SuperMedia file for bankruptcy to save merger

dranii@newsobserver.comMarch 18, 2013 

Cary yellow pages publisher Dex One and Texas-based SuperMedia have filed “prepackaged” bankruptcy plans in order to move ahead with their merger.

The two companies, which announced their merger plans in August, previously had said they would resort to a prepackaged bankruptcy in order to complete their deal if they were unable to win support of 100 percent of their lenders. The companies have been seeking to restructure their debt by pushing out the date it must be repaid by two years to 2016.

Dex CEO Alfred Mockett, in a conference call with analysts Monday morning, called the bankruptcy filings “a strategic process to facilitate implementation of the merger.”

The two companies expect the filings will enable them to complete their merger, which is subject to court approval, within 45 to 60 days. They reported that “a substantial majority” of their lenders were in favor of filing for bankruptcy in order to seal the deal.

In a prepackaged bankruptcy, the legally required percentage of creditors agree to a reorganization plan in advance. Lenders typically fare better in a prepackaged bankruptcy.

Dex spokesman Tyler Gronbach said neither company would be filing for bankruptcy if it wasn’t for their desire to restructure their debt as part of the merger.

“Both companies have a nice supply of cash flow to satisfy their obligations,” he said. Last year Dex reduced its debt by $525 million.

Shares of both Dex and SuperMedia shares rose more than 10 percent Monday in the wake of the bankruptcy filings. Dex shares closed at $2.35, up 24 cents; SuperMedia shares rose 47 cents and closed at $4.41.

Unlike a traditional bankruptcy where shareholders suffer, the bankruptcy plan put forth by Dex and SuperMedia wouldn’t alter the ownership stakes of shareholders. Nor are bondholders affected. But the repayment date for its bank loans would be extended and the interest rate on the loans would rise.

In addition, the plan offers the prospect of $150 million to $175 million in savings arising from cost-cutting and operating efficiencies in the wake of the merger, plus $1.8 billion in past losses that can be used to offset income taxes moving forward, said Dex spokesman Tyler Gronbach.

The companies will continue operating while in bankruptcy and say they won’t need to obtain financing to see them through the process. They are seeking court approval to continue paying their bills and salaries in full without interruption.

Both companies are familiar with bankruptcy court. Each filed for bankruptcy in the wake of the recession and emerged with new names and less, but still substantial, debt. Dex One was R.H. Donnelley before its first bankruptcy.

Since emerging from bankruptcy the two companies have continued to struggle along with the rest of their industry. The combination of the economic downturn plus the widespread shift of advertising dollars from print to digital media have disrupted their businesses.

Although both companies have been expanding their digital advertising revenue, it hasn’t been growing rapidly enough to compensate for their declining print revenue.

Dex reported assets of $2.84 billion and liabilities of $2.79 billion while SuperMedia reported assets of $1.4 billion and liabilities of $1.9 billion in their bankruptcy filings in federal bankruptcy court in Delaware.

Shareholders of both companies approved the merger deal last week.

The corporate headquarters of the combined company will be in Dallas and run by Peter McDonald, SuperMedia’s top executive. Mockett, Dex’s CEO, is departing after the merger is completed.

Today Dex has about 225 workers in the Triangle, down from 300 when the merger was announced in August, with the vast majority of the decline due to attrition. Companywide, Dex has about 2,200 workers, down from 2,600 in August.

Dex, which publishes more than 800 yellow pages directories and has been repositioning itself as a digital marketing company, also released its fourth-quarter and year-end financial results on Monday.

The company’s ad sales fell 13 percent for the quarter and the year, while bookings declined 14 percent in the fourth quarter and for all of 2012. Both bookings and ad sales are indicators of future revenue.

Despite the downturn, Dex’s results were in line with its projections. And bookings for digital ads rose 29 percent in the fourth quarter.

Of the company’s $1.3 billion in revenue last year, $1 billion came from print ads and $300 million came from digital ads.

Ranii: 919-829-4877

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