AT&T Dismantles Yellow Pages from Its Shelf: Its Glory Days Are Over

The Dallas based Telecommunications giant AT&T announced on Monday that it is getting rid of its rapidly shrinking yellow pages advertising and directories business. It said that it had agreed to sell a majority stake to private-equity giant Cerberus Capital Management for $950 million.

The sale is part of AT&T’s plan to discard its dwindling business so it can focus on segments that are growing, particularly its wireless business. Increasing competition from online rivals, Google Inc., Groupon and Yelp had resulted in a 30 percent loss in revenue over the last few years.

Jose Gutierrez, president of AT&T Advertising Solutions said, “It enables AT&T to focus on its core strategy of leadership in wireless, IP, cloud- and application-based services. At the same time, it gives our advertising customers, partners and developers continued access to strong advertising and search innovation and performance.”

Announcing details of the deal, it said, it “will retain a 47 percent stake in the new YP Holdings venture created from the deal. It also gets a $200 million note from Cerberus, a private investment firm based in New York.”

The assets that AT&T is selling include the Yellow Pages directories business, the YP.com Web site, the YPmobile app, the YP ad network, and parts of AT&T Advertising Solution and AT&T Interactive. However, the divestment does not include AT&T AdWorks, a recently formed operation based in New York that sells ads for the Internet, mobile devices and television.

Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York who rates AT&T shares market perform, wrote in a report. “It is a sensible step, unfortunately for AT&T, however, the transaction is barely material, either in the proceeds it returns or in the change it portends to AT&T’s overall growth rate.”

Analysts believe that AT&T should have divested long time ago, much before the Yellow Pages plunged in value. Sales fell by 16 percent last year. They feel that it should have followed rival Verizon’s example which exited at the right time.

The transaction begets a question, if the business faced such a bleak future why was Cerberus buying it? Analysts say that even though its best years may be behind it, the business still has considerable revenue generating potential. The yellow pages directory is estimated to reach more than 150 million homes and business in the US. The new majority owner, will milk it for as much revenue as possible, before exiting.

AT&T is facing worker union trouble and even though worker contracts have expired, workers are continuing to work, postponing a walkout, awaiting the outcome of ongoing negotiations. AT&T said YP will continue to honor existing union contracts after the transaction.

The deal gives Cerberus AT&T “businesses that generated $3.3 billion in revenue last year, including a print directory of about 1,200 The Real Yellow Pages, and a local ad network reaching 71 million monthly unique visitors.”

Wall Street Journal reported that the deal was awaiting the go-ahead from the US Justice Department and is expected to close sometime in the midyear.