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R.H. Donnelly unlikely bidder for Verizon phone book

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Dec. 6--Cary-based R.H. Donnelley is an unlikely bidder for Verizon Communications' directory business, which the telephone company put on the market Sunday night, analysts said.

New York-based Verizon, the No. 2 U.S. telephone company, said it is exploring a sale or spin-off of its yellow pages business to finance its expansion in wireless and high-speed Internet services.

David Goddard, senior analyst at Simba Information, a market research firm, said Verizon's operation is a plum that Donnelley would like to own. However, he added, the timing couldn't be worse for Donnelley, given that it is acquiring Colorado-based Dex Media for $4.2 billion. That deal, which will make Donnelley the country's No. 3 publisher of yellow pages, is expected to close in the first quarter.

Pursuing an even bigger deal while it is still swallowing Dex could prove to be too much for Donnelley, Goddard said.

Donnelley's purchase of Dex -- which is bigger than Donnelley in both revenue and employees -- has raised concerns among investors because it will push Donnelley's total debt to $10.7 billion. But Donnelley executives say the cash flow of the combined operations will be sufficient to handle the debt.

Donnelley has been prudent in making acquisitions and probably won't be willing to pay the price Verizon is expected to demand, said Ken Clark, publisher of YP Talk, an online newsletter about the yellow pages industry based in Holly Springs. "I just don't see Donnelley jumping in whole hog to buy the whole thing," he said.

If Verizon decides to sell its yellow pages operation piecemeal, however, Donnelley could bid for directories in key markets, said Clark.

An analyst with J.P. Morgan Securities, Jonathan Chaplin, told Bloomberg News that Verizon's directory business could fetch as much as $19 billion -- which would be the biggest yellow pages deal ever.

Verizon's yellow pages business has 7,300 employees and $3.6 billion in annual revenue. After the Dex acquisition, Donnelley will have about 4,800 employees and generate $2.7 billion in annual revenue.

Donnelley itself is keeping mum on its plans. "It would be inappropriate for us to speculate on what we might or might not do with respect to Verizon," said spokesman Tyler Gronbach.

But Gronbach added: "Right now, we have a lot to do with the integration of Donnelley and Dex. So our dance card is a little full right now."

Verizon's shares have slumped 22 percent this year as competition from cable companies lured local-phone subscribers.

Verizon shares closed Monday at $31.71, down 16 cents. Shares of Donnelley, which are up 7 percent this year, slipped 42 cents to $63.21.

Verizon follows phone companies such as Denver-based Qwest Communications International and Reston, Va.-based Sprint Nextel Corp. in selling its directories business to raise money and pay down debt.

Directories are reliable generators of cash because of advertising purchased by businesses, and have attracted interest in the past few years from private equity firms, as well as from Donnelley. In addition to the pending Dex acquisition, Donnelley previously bought the yellow pages businesses of Sprint and SBC Communications.

Donnelley has nearly 500 employees in the Triangle. The company moved its headquarters from New York to Cary in 2004, partly because of more than $4.3 million in state and local incentives.

Bloomberg News contributed to this report.


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