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The Kelsey Report® Advisory

Forstmann Bid Puts McLeodUSA Publishing in Play
Charles Laughlin,John Kelsey , 12/13/2001

Issue: CLEC to Sell 'Strategic' Unit for Much-Needed Cash

News: Debt-ridden competitive local exchange carrier McLeodUSA has negotiated a recapitalization plan that includes the sale of its directory business, McLeodUSA Publishing, to one of its principal investors, Forstmann Little & Co., with an option to find a higher bidder before the deal closes. McLeodUSA is one of the leading competitive directory publishers in the U.S., behind Yellow Book USA and TransWestern Publishing. The company has been a major consolidator of smaller independent publishing companies over the past several years.

The recapitalization plan will result in McLeodUSA effectively retiring $2.9 billion in publicly traded bond debt in exchange for $560 million in cash, plus 14 percent of McLeodUSA's post-recapitalization common stock. McLeodUSA, which is overburdened by debts acquired during a much more bullish telecom market, has not ruled out filing for Chapter 11 bankruptcy in order to get back on its feet.

As part of the deal, McLeodUSA has sold its McLeodUSA Publishing subsidiary to Forstmann Little for $535 million. In addition, Forstmann has agreed to invest another $100 million in McLeodUSA. McLeodUSA has negotiated the right to sell its publishing business for a higher bid with no break-up fee, and Credit Suisse First Boston (CSFB) has been retained to find a buyer.

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