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The Kelsey Report® Advisory

YPG Faces Obstacles in Acquiring Verizon's Canadian Operation
Charles Laughlin , 6/24/2004

SUMMARY: Canada's Yellow Pages Group (YPG) has made it clear that it would like to acquire the old Telus Advertising Services business from Verizon Information Services, but there is some question whether YPG's financial structure makes such a deal possible right now. According to a story in Canada's National Post newspaper, the Yellow Pages Income Fund, the income trust that owns Yellow Pages Group, issued roughly 295 million trust units in the past year, combining the initial public offering that launched the fund, plus subsequent issues designed to buy out Kohlberg Kravis Roberts & Co.'s (KKR's) stake in YPG. KKR and the Teacher's Merchant Bank acquired Yellow Pages Group from Bell Canada in 2002 for 3 billion Canadian dollars (about US$2 billion). The National Post article cited Canadian financial analysts who suggested that the market may not be ready to absorb a new flood of units. This situation thus limits YPG's options should it choose to bid on the Verizon property.

Verizon's apparent decision to sell the Canadian operation follows a recent pattern of shedding non-core units in order to generate cash to reduce debt or fund more strategic initiatives by parent company Verizon Communications. Verizon recently sold its European directory holdings, and sold its entire local telecom operation in Hawaii, including directories.

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