The two buyout firms will pay 2.04 billion pounds (US$2.9 billion) in cash and 100 million pounds (US$142.13 million) in loan notes for Yell Group, British Telecom said in a statement sent to news agencies.
British Telecom, the former UK phone monopoly, already announced plans to raise 11 billion pounds by selling assets and shares to reduce its 27.9 billion pounds (US$39.65 billion) of debt. Hicks Muse and Apax are buying Yell for about a third the price that they offered last month, bankers said. They lowered their bid after a regulator forced Yell to cut its advertising rates in Britain.
"This is a fire-sale transaction," said Mike Williams, an analyst at Deutsche Bank AG.
Hicks Muse and Apax aren't assuming any debt in Yell. The transaction would be the biggest leveraged buyout of a European company this year and the third-biggest ever, according to the research firm Initiative Europe.
British Telecom shares rose 3.5 percent to 448 pence (US$6.37) on Friday. They've declined 12.8 percent this year, compared with a 5.5 percent drop in the FT-SE 100 stock index.
Lower ad rates
Yell had operating profit last year, before one-time items and goodwill, of 208 million pounds (US$295,63 million) on revenue of 774 million pounds (US$1.1 billion). Its operating margin is 27 percent.
A ruling by the UK's Office of Fair Trading on May 11 indicated Yell will have to lower its ad rates in Britain by about 4 percent at the start of 2002, and may be forced to cut them further in the three subsequent years. About 75 percent of Yell's revenue comes from the UK.
Yell also owns the largest independent yellow pages publisher in the US, Yellow Book USA. Senior managers in the unit, led by Joe Walsh, are expected to receive more than 40 million pounds from the sale to Hicks Muse and Apax, the Sunday Times of London reported.
Apax manages Europe's largest private equity fund, worth US$3.8 billion, while Dallas-based Hicks Muse will use its US$1.5 billion dedicated European fund to help pay for the transaction.
About 1.45 billion pounds (US$2.06 billion) of the purchase price would be paid for with debt--500 million of which would be in junk bonds, bankers said.
British Telecom said it expects the sale of Yell to be completed by the end of next month. "The sale of Yell is good for BT and its shareholders," said Sir Christopher Bland, British Telecom's chairman, in a statement.
The Yell transaction is the latest for British Telecom. The company earlier this month agreed to sell its stake in Japan Telecom Co and other wireless units to Vodafone Group Plc for 3.7 billion pounds (US$5.258 billion). It then reached an agreement to sell 20 percent of the Open interactive television service to British Sky Broadcasting Group Plc for as much as 384 million pounds (US$545.779 million).
Hicks muse fund
Hicks Muse already invested 1 billion euros (US$858.5 million) from its European fund. Its holdings include Hillsdown Holdings, which produces tea, jams and jellies, and sells furniture through its Christie-Tyler subsidiary. Hicks Muse also owns stakes in BestBake foods, previously known as Burton's Biscuits, and EurotaxGlass's, a publisher of auto-parts catalogs and software.
The fund has two telecommunications investments Viatel Inc and LandTel NV.
Hicks Muse's media acquisitions in Europe include Media Capital SGPS, a Portuguese company with television, radio, newspapers and magazines, and The Glass Group, a UK publisher of automotive information.
Apax also has made media investments. It backed TDL Infomedia, the second largest classified-directory publisher in the UK, British radio station Virgin Radio and online auctioneer QXL.com before selling its stakes in all three.
New York-based Kohlberg Kravis Roberts & Co, which operates the world's second-largest buyout fund of US$6 billion, also made a bid for Yell, which was lower than the one from Hicks Muse and Apax, people familiar with the situation said earlier this week. KKR spokesman Andrew Nicolls declined to comment.
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