SUMMARY: On Wednesday, the Wall Street Journal, citing confidential sources, reported that R.H. Donnelley was pursuing the acquisition of Dex Media. Without missing a beat, the financial community weighed in, driving down the price of both stocks, and some banks issued downgrades on one or both of the publicly traded companies. The two companies have not commented publicly on the report, nor do we expect them to any time soon.
The deal, if it happens, would create a publisher with combined annual revenues of roughly US$2.7 billion and combined earnings before interest, taxes, depreciation and amortization (EBITDA) of US$1.5 billion, making it the third-largest U.S. publisher. The Kelsey Group believes the deal, again if it happens, would create some cost synergies. It would also give the combined company a larger sales force and geographic footprint, which would offer some advantages, particularly as online directory and local search advertising sales begin to take form.