Yellow Media Inc. (YLO_UN.TO) said Tuesday that it has agreed to buy search and directories publisher Canadian Phone Directories Holdings Inc. or Canpages from an investor group led by private equity firm HM Capital Partners for about C$225 million.
The deal will combine two of Canada's biggest publishers of advertising directories and local web search engines and enable Yellow Media to boost its online presence.
Yellow Media also announced its plans to sell its U.S. directory business, YPG Directories LLC, to Ziplocal LP.
Yellow Media, a subsidiary of Yellow Pages Income Fund, said that the purchase price consideration for Canpages of C$225 million is comprised of C$75 million payable in cash at closing to settle third party debt obligations and the issuance of C$150 million of mandatory exchangeable promissory notes of Yellow Media. The notes will rank subordinate to the senior debt of Yellow Media and bear interest at a fixed initial rate of 5%, payable quarterly in cash.
Starting in the first quarter of 2011 following Yellow Pages Income Fund's conversion to a corporation, the notes will be convertible into common shares of Yellow Media, giving the current owners of Canpages a minority stake in Canada's largest publisher of directories including Yellow Pages and related web search engines. Yellow Media owns Yellow Pages Group and Trader Corporation.
Each quarter, Dallas, Texas-based HM Capital Partners will have the right to exchange C$37.5 million of the notes, representing 25% of the principal amount. Yellow Media may redeem all or a portion of the notes for cash together with accrued and unpaid interest at any time following closing and until December 31, 2014.
Vancouver-based Canpages publishes 84 directories for a total circulation of about 8 million copies. The company's website, Canpages.ca, attracts more than 3.5 million unique visitors each month. Canpages generates annualized revenues of C$110 million with an online contribution of approximately 23%. The company employs about 700 people in Canada, including more than 450 sales consultants.
Yellow Media said it will continue to publish the Canpages print directories after the deal closes.
Marc Tellier, Chief Executive Officer of Yellow Pages Group, said, "The acquisition of Canpages will accelerate our business transformation to the digital world. Canpages has built a strong local search business and we are pleased with the prospects of joining forces. It will give us the opportunity to expand our sales force, online capabilities and customer offerings."
HM Capital is a sector-focused private equity firm that primarily makes investments in the energy, food and media industries. Since its inception, the company has completed more than 150 transactions in these sectors for a total transaction value in excess of US$26 billion.
Yellow Media also said it has a deal to sell its U.S. directory operations, YPG Directories, LLC, to Ziplocal, LP, which was itself acquired by Canpages. Financial terms of the deal, which will take the form of an equity-for-equity swap, were not disclosed.
The business combination will be executed under an accelerated timeline and is expected to close on or about April 15, 2010. The new entity is expected to generate approximately US$120 million in revenues.
YPG Directories is the publisher of Your Community Phone Book or YCB, which was acquired from Volt Information Sciences, Inc. in September 2008. YCB is the publisher of independent directories in selected Mid-Atlantic and Southeast American markets.
Ziplocal reaches more than 8 million homes and businesses across the U.S. The company, which operates ziplocal.com, employs 700 people and serves more than 120,000 customers. Following the merger, Ziplocal will reach over 300 markets across the U.S, more than double the 167 it currently reaches.
Yellow Media said it will own a 35% minority stake in the new entity resulting from the business combination of YPG Directories and Ziplocal. The company will also continue to fully own and operate its information technology platform and centers of excellence located in Blue Bell, Pennsylvania and Indianapolis, Indiana.
Yellow Media said that along with Ziplocal, it will explore potential long-term outsourcing agreements following the closing of the transaction.
Scotia Capital and TD Securities acted as financial advisors to Yellow Media for the proposed transaction, while Signal Hill acted as advisor to Canpages and Ziplocal.
In Tuesday's regular trading session, YLO_UN.TO is trading on the Toronto stock exchange at C$6.27, up C$0.05 or 0.80% on a volume of 0.82 million shares. In the past 52 weeks, the stock has been trading in a range of C$4.78-C$6.32.
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