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Founded in 1880, R.H. Donnelley turned into a legendary telephone directory publishing company. However, over the past few years, things have been particularly brutal. In fact, this week the company filed for Chapter 11 bankruptcy.
R.H. Donnelley has roughly 600 local business directories. To build this scale, R.H. Donnelley struck a variety of M&A deals. For example, there was a $2 billion purchase of Sprint's operations, as well as the $9.5 billion deal for Dex Media.
However, to pull off these deals, R.H. Donnelley had to take on a staggering amount of debt. True, from 2003 to 2007, the debt markets were attractive-- and willing to lend on just about anything.
But, with the current recession, credit crunch and crumbling ad markets, the world is much different. As a result, R.H. Donnelley will exchange $6 billion in debt for 100% of the equity. There will also be a new $300 million note.
All in all, the deal makes a lot of sense -- and gets R.H. Donnelley on a stable footing. However, the fact remains that the traditional directory business is under much pressure from online players like Google (NASDAQ: GOOG), Yelp and so on. In other words, R.H. Donnelley will need to do more than financial engineering to get things back on track.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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