Wednesday, 28 September 2011

Yellow Media falls 50% after divident halt and $2.9B charge

Yellow Media falls 50% after divident halt and $2.9B charge
Eric Lam Sep 28, 2011 – 7:30 AM ET | Last Updated: Sep 30, 2011 2:46 PM ET
Yellow Media Inc., under pressure from falling advertising revenues amid a transition to digital, suspended its dividend Wednesday and reported a $2.9-billion goodwill impairment charge on its assets effective at the end of the quarter. Shares of the company plummeted at the open and were down 50% to 28¢ a share on the Toronto Stock Exchange at 2 p.m. ET as investors fled for the exits.
The company will pay out its last remaining scheduled quarterly dividend of 2.5¢ a share on Oct. 17, and use the cash savings to pay down its debt.
“Management’s current focus is to reinforce the company’s financial foundation upon which to execute Yellow Media’s digital transformation,” the company said in a release.
 Maher Yaghi, analyst with Desjardins Securities, put both the rating and share price of Yellow Media under review and warned of a lack of visibility on revenue and earnings beyond 2012.
“While the elimination of the dividend will lower the pressure on cash use, the reduced banking facility and continued pressure on the company’s business from the decline in print continue to unbalance its financial position,” he said in a note. “Until we are convinced that the road to organic growth is clearly established — which we are unable to forecast at this time — we maintain our view that trading in the shares is a speculative endeavour.”
Mr. Yaghi figures the dividend elimination will save about $75-million a year. As well, at the end of the most recent quarter, the company had $5.9-billion in goodwill and $1.7-billion in intangibles, he said. Due to a recent downgrade of its credit ratings, Yellow Media has also had to revise the terms of its $1-billion senior credit facility with major lenders, and has agreed to pay down $500-million of debt while reducing the size of its revolving term loan to $250-million from $750-million, maturing in February 2013. As part of the arrangement the company will make quarterly payments of $25-million on its non-revolving loan beginning January 2012.Yellow Media is also making a $238-million repayment of medium term notes.
Overall debt payments announced Wednesday will reduce the company’s total debt position by about $700-million, which represents the net proceeds from the previously announced sale of Trader Corp., the company said. “We are decisively taking action to reduce our debt,” Marc Tellier, chief executive with Yellow Media, said in a release.
Meanwhile, the company has taken a $2.9-billion goodwill impairment hit after completing a review of its assets. The charge is a result of several factors, including a steep decrease in the company’s share price, pressure on earnings due to the accelerated transition from print to online, uncertainty over when new product introductions will begin to compensate for dropping print revenues and lower margins from recent business acquisitions. This charge does not affect Yellow Media’s operations, liquidity or cash flow, its bank credit agreement or note indentures, the company said.
Yellow Media, publisher of the Yellow Pages business phone directory, has had a particularly troublesome time adapting to the digital age. It operates several popular websites including Canada411.ca and RedFlagDeals.com, but has also had to sell off its lucrative portfolio of print publications under the Trader Corp. banner to stay afloat. The company’s shares, which hovered at about $14 in 2007, closed at 59¢ on Tuesday on the Toronto Stock Exchange. Its former chief financial officer, Christian Paupe, quit earlier in September to pursue other interests.

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