New York – Shares of Englewood-based Dex Media Inc. and RH Donnelley Corp. fell today, trading at nearly triple their average volume, after investment firm Merrill Lynch downgraded the both companies, and Friedman Billings downgraded Dex, on reports that the phone book publishers are in merger talks.
Dex shares dropped $2.50, or 8.7 percent, to $26.40 in afternoon trading on the New York Stock Exchange. With a new 52-week high of $29.21 Tuesday, shares had climbed 14 percent since opening Thursday, likely fueled by rumors of the talks. Company shares have risen from a 52-week low of $19.99 in March, and are up 10 percent so far this year.
Donnelley shares fell $3.42, or 5.3 percent, to $61.58 on the NYSE. In the past 52 weeks, shares have traded in the $48.52 to $67.58 range, and are up 5 percent so far this year.
Merrill Lynch downgraded both companies to “Neutral” from “Buy,” after The Wall Street Journal reported they are in sensitive talks to combine. Investment firm Friedman Billings, downgraded Dex to “Market Perform” from “Outperform.”
Merrill Lynch Analyst Karl Choi told investors in a note that Donnelley, the smaller of the two companies, would have to use some equity financing for the deal, estimated at more than $4 billion, given the high debt load of both companies. It is also likely that Donnelley would have to assume Dex’s debt, Choi said, forming a company with a $2 billion debt load.
The majority of Dex shares are owned by private-equity firms Carlyle Group and Welsh, Carson, Anderson & Stowe.
Choi said one advantage to such a deal is that a combined company would have a larger footprint to more aggressively pursue Internet phone listings and possible ally themselves with Yellowpages.com, a joint venture owned by SBC and BellSouth.
