Dex Media shareholders take major hit

dranii@newsobserver.comNovember 8, 2013 

The recent fortunes of Dex Media shareholders and the company’s senior management have taken divergent paths – with the former taking a big hit and the latter enjoying a multimillion-dollar payday.

Shares of yellow pages publisher Dex Media, which was formed when Cary-based Dex One and Texas-based SuperMedia merged, fell 30 percent Tuesday after the company reported its third-quarter revenue declined 17.4 percent from a year ago on a pro forma basis – that is, calculating as if the merger had occurred at the outset of 2012.

As of Friday, when Dex Media’s shares closed at $4.55, up 3 cents, the company’s stock has plummeted roughly 60 percent since the merger was completed at the end of April.

Hitting the six-month anniversary of the merger, however, also meant a major payday for the company’s top five executives, all of whom previously worked at SuperMedia. That milestone triggered payments totaling $5.4 million for the five executives, including $2 million for CEO Peter McDonald.

That’s because, according to documents filed with the Securities and Exchange Commission, a change-in-control clause in the executives’ employment agreements with SuperMedia called for them to receive “accelerated long-term incentive awards” six months after a change of ownership.

In addition to McDonald, the cash payments to the other top executives outlined in SEC documents include:

• $1.2 million to Samuel “Dee” Jones, chief financial officer.

• $800,000 each to Frank Gatto, executive vice president of operations, and Del Humenik, executive vice president of sales.

• $600,000 to Cody Wilbanks, executive vice president and general counsel.

Suzanne Keen, spokeswoman for Dallas-based Dex Media, declined to comment on the incentive awards or the decline in the company’s stock price.

“Our executive long-term incentive awards and stock price are both public information, so we have no further information to add on those subjects,” she wrote in an email.

Despite a movement to tie executive compensation more directly to a company’s performance, the scenario that has emerged at Dex “is not uncommon,” said Greg Sterling of Opus Research, a consulting and research firm.

Sterling said investors this week were much less concerned about the 20.6 percent decline in print ad sales than they were with the flat sales of digital ads. (Ad sales are a leading indicator of future revenue.)

“I think the market isn’t focusing on the print decline because that is a story that is well-known and transcends the yellow pages industry,” Sterling said. However, “the digital side of the business is seen as the future.”

Dex Media publishes yellow pages directories in 43 states but has been aggressively moving into selling digital and mobile advertising, not only for online yellow pages but for partners such as Google and Yahoo. Dex One and SuperMedia already were focused on digital ads when the two companies merged, but they were struggling because digital sales weren’t rising fast enough to compensate for declining print sales.

Sterling said of Dex’s future prospects: “I don’t think the world is completely bleak for them. They have these (more than) 2,000 salespeople. They have 600,000 advertisers,” and they have a customer renewal rate that is much better than its all-digital-advertising competitors.

The key going forward, Sterling said, will be whether Dex has an attractive bundle of advertising products and whether it can convince its bread-and-butter small-business customers that they are getting a good return on their investment.

“Selling digital advertising to small businesses is very challenging,” he said. “Everybody has difficulty with it, including Google, Facebook.”

McDonald, Dex’s CEO, said during a conference call with analysts this week that the company “is well-positioned for future growth. ... As the trends in digital advertising remain strong, we believe this bodes well for the future of Dex Media.”

Although the merger was originally billed as a merger of equals and Dex One shareholders ended up with a 60 percent ownership stake in the business, the top eight executives at the combined company came from the SuperMedia side of the business. In addition, the headquarters was established in Dallas rather than Cary.

Cost-cutting since the merger was announced also has taken its toll on the company’s Triangle workforce. Today Dex Media has 150 workers locally, half of what it had when the merger was announced in August 2012.

Ranii: 919-829-4877

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