Phone-directory company R.H. Donnelley Corp. is in discussions to purchase Arapahoe County-based Dex Media Inc., according a report in the Wall Street Journal.
Sources familiar with the matter told the Journal that the deal could top $4 billion and provide another rich payout to Dex’s private-equity backers.
Dex shares fell $1.36, or 4.7 percent, to close Wednesday at $27.54. Dex publishes 269 directories across 14 states and employs 2,800, including a 1,000- member sales force.
The talks are at a sensitive stage, and no deal is certain. In the five days prior to the Journal report, Dex shares climbed more than 14 percent, to a market value of $4.35 billion.
Merrill Lynch downgraded both companies to “neutral” from “buy” on news of the report. Investment firm Friedman Billings downgraded Dex to “market perform” from “outperform.”
A majority of Dex’s stock is owned by two private-equity firms, the Carlyle Group and Welsh, Carson, Anderson & Stowe. The two firms led the purchase of Dex from Qwest in 2003. Each put in $775 million in equity as part of a total purchase price of more than $7 billion.
Since then, the two investors have recouped their initial investment through special dividend payouts, and they led an initial public offering of the company at $19 a share in 2004.
Dex Media, R.H. Donnelley and the Carlyle Group declined to comment on the rumors.
Last month, Dex reported second-quarter net income of $18.8 million, or 12 cents a share, compared with a loss of $4.1 million, or 4 cents a share, during the same period last year. Revenues increased 4.2 percent to $413.5 million, compared with $396.7 million last year.
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, given the high debt load of both companies. It also is likely that Donnelley would have to assume Dex’s debt, Choi said, forming a company with a $2 billion debt load.
