Marketing services company Dex One Corp. (DEXO) and yellow pages directory publisher SuperMedia Inc. (SPMD) on Tuesday agreed to combine their operations in a stock-for-stock merger of equals. The combined company, to be called Dex Media, is expected to be a provider of social, local and mobile marketing solutions through direct relationships with local businesses.
Under the deal terms, Dex One, formerly R.H. Donnelley Corp., and SuperMedia shareholders will exchange their shares for shares in Dex Media. Dex One shareholders will receive 0.20 shares for each Dex One share they own, and Super Media shareholders will receive 0.4386 shares for each SuperMedia share they own.
Both Boards of Directors have approved the definitive agreement, under which Dex One shareholders would own approximately 60 percent of the new company and SuperMedia shareholders would own the remaining about 40 percent.
The transaction is expected to close in the fourth quarter of 2012, subject to approval from both companies' stockholders, among others.
It is expected that the new firm will have over 5,800 employees, including more than 3,100 consultants. Initially, the combined company will have relationships with more than 700,000 businesses.
The companies expect the joined business to benefit from improved operating scale, significant synergies and enhanced cash flow.
On a pro-forma basis, for the full year 2011, the combined company would have reported $3.1 billion in revenue, $778 million in adjusted operating income excluding some $1.8 billion of impairment charges, and $1.2 billion in non-GAAP adjusted EBITDA.
The new firm estimates to realize $150-$175 million of annual run rate cost synergies by 2015 due to scale efficiencies, rationalization of duplicative solutions and headcount reductions, among others. It will also incur $100-$120 million of one-time transition expenses to achieve these synergies.
Dex Media is expected to preserve access to Dex One's remaining tax attributes and generate future attributes of as much as $1.8 billion to benefit cash flow.
Dex One's Chairman of the board Alan Schultz will be chairman of the combined company, while the president and CEO of SuperMedia, Peter McDonald, will become CEO. Dex One's current CEO Alfred Mockett will step down at the close of the transaction. SuperMedia CFO Samuel (Dee) Jones will become the new CFO.
McDonald, who has worked in Dex One as well, said, "Our common goal over many decades has been to drive results for local advertisers. By joining together, we will have nationwide presence to increase market share and achieve operating and service efficiencies."
The companies noted that decisions regarding their brand and name changes in local markets as well as about headquarters and other principal locations will be made later.
In the deal, Houlihan Lokey is acting as financial advisor to Dex One, and Morgan Stanley & Co. LLC and Chilmark Partners are acting as financial advisors to SuperMedia.
In pre-market activity, DEXO shares gained $0.26 or 20.97 percent, and are currently trading at $1.50. SPMD shares increased $0.31 or 12.02 percent, and are currently at $2.89.
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