R.H. Donnelley lets its money do the talking

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Yellow Pages publisher R.H. Donnelley Corp., Cary, N.C., announced last week that it has agreed to acquire Yellow Pages publisher Dex Media for about $4.2 billion in cash and stock.

The combined company will be the third-largest print and Internet directory publisher in the U.S. and will operate in 28 states. Its 600 directories will have a total circulation of 73 million and serve more than 650,000 local and national advertisers. The transaction, subject to regulatory and shareholder approval, is expected to close in the first quarter of 2006.

Donnelley's motivation to make the deal is its interest in online search, while Dex benefits from extended reach.

"Dex is well known throughout the industry for their innovative marketing expertise and their success in developing excellent online products, while R.H. Donnelley has an excellent reputation for sales and operating execution," said David Swanson, CEO of R.H. Donnelley, in a conference call announcing the deal. "Our two companies fit together extremely well, with highly complementary geographies, cultures and competencies."

Synergy and size important

That synergy is becoming more important, experts say. So, too, is size.

"Broader scale is an important strategic characteristic as these companies become both print and online," said Negley Norton, president of the Yellow Pages Association. "It's a broader base to leverage fixed costs."

Francis Barker, senior VP-strategy and corporate development at Dex Media, agreed the companies benefit from greater reach and cited additional reasons.

"The [Yellow Pages] model works on a local basis, but as you try to go to regional and national advertisers, we are less efficient in meeting their needs," he said. "People think of national search as you go from print to electronic. That's an opportunity for us, but in order to respond to that opportunity we have to have greater geographic reach and more scale on which to use our innovations, and more scale to attract partners and develop our business."

The combination is the linchpin necessary to attract national advertisers. "I think given the scale of Donnelley and Dex [combined], it'll make them a more attractive national advertising option," Norton said.

Seeking leverage with search companies

Most important, Donnelley sees the deal as a deeper dive into online search to garner a larger share of that lucrative market. "We believe our new size gives us significant new opportunities to seek and negotiate agreements with online search players, wireless carriers and, of course, our supply chain vendors and suppliers," Swanson said.

The combined company will take on Verizon's directly. Verizon is the No. 2 Yellow Pages company and has a visible national presence online.

"We're the most advanced Internet Yellow Pages," said Janet Stevens, VP-public affairs at Verizon. "We offer fixed-fee advertising options, as well as pay-per-click and pay-per-call options," she said. Stevens said Donnelley has "a lot to do to catch up." 

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