Earlier this morning SuperMedia and DexOne announced that they would merge to form a combined directory and local marketing services company. This had been anticipated by a number of industry insiders for at least a couple of years.
Both companies were spun out of telcos, Verizon in the case of SuperMedia and Qwest in the case of DexOne. Both companies entered bankruptcy and restructured. Both companies had a substantial amount of debt. Both companies are seeking to transform their businesses from print-revenue centric to digital.
The merger is a straight stock swap; there’s no cash involved apparently. The transaction must be approved by shareholders from both companies but is expected to close in Q4 of this year. According to the press release:
Dex One Corporation and SuperMedia Inc. oday announced that their Boards of Directors have approved a definitive agreement under which Dex One and SuperMedia will combine in a stock-for-stock merger of equals, creating a national provider of social, local and mobile marketing solutions through direct relationships with local businesses.
Upon closing of the transaction, Dex One shareholders are expected to own approximately 60 percent and SuperMedia shareholders are expected to own approximately 40 percent of the combined company.
Veteran yellow pages executive and SuperMedia CEO Peter McDonald will be the chief executive of the combined entity, DexOne CEO Alfred Mockett will be chairman. The new entity will have 3,100 salespeople and 700,000 advertiser relationships.
If the unified company existed today it would have reported $3.1 in revenue in 2011 and $1.4 billion in revenue for the first half of 2012. The logic of the merger is obvious: create more scale, save on operational expenses.
Both companies have been trying to shift from reliance on traditional print revenue to digital. One SuperMedia executive said to me in email this morning that this will help accelerate that transition.
That’s true but the merger will also be a major distraction for employees for a period of time. Some people will lose their jobs and there will be other uncertainty as the companies combine operations. If that process can be efficiently accomplished disruption can be minimized. But employee execution may be impaired for a period of time during the transition.
The combination leaves a smaller yellow pages landscape with three major US publishers in its wake: YP, Yellowbook/hibu and the merged Dex-SuperMedia. There are a number of independent publishers as well. It will be interesting to see whether there is any movement toward greater consolidation in that sector. Yellowbook was largely created through the acquisition of independent yellow pages publishers.
The traditional print directory business has been contracting by 15% to 20% annually, while the digital side of the business has been growing.
What is your take on this? Do you think the combined company will be in a stronger position to succeed?