Distressed directory publishers Dex One and SuperMedia announced a merger today that has delighted shareholders and lenders, as the debt and equity of each company has risen significantly following the announcement.
The proposal has returned considerable value to the companies’ respective credit facilities that have long been trading at deep discounts, according to sources and trade data that track their health in the secondary: Dex 12% subordinated toggle notes due 2017, of which there are $212.3 million outstanding as of June 30, were trading in
high volume today, most recently at 38.5, up from trades as low as 28 yesterday before the announcement, according to trade data.
Dex East’s term loan due 2014 (L+250) gained seven points to 63/65, from 56/58 before the announcement, and Dex West’s term loan due 2014 (L+450) is up three points to 64.25/66.25, from 61/63, according to sources, while R.H. Donnelley term debt due 2014 was up fully six points, to 57/59, from 51/53. SuperMedia’s term loan due 2015 (L+800, 3% LIBOR floor), meanwhile, rose to 66.25/68.5, from 60.5/61.5 before the announcement.
Dex’s stock, trading on the NYSE under DEXO, has jumped 38.7% to trade at $1.72 by noon today, while SuperMedia’s stock under SPMD on the Nasdaq rose 53.1%, to $3.95 by that time.
SuperMedia has $1.51 billion on its term loan, while Dex has a combined $2.07 billion in debt, according to the presentation that accompanied the announcement.
On a call that took place today to address questions about the merger, Dex CEO Alfred Mockett said management expects the combination will result in annual cost savings of $150-175 million, with costs to achieve those savings of $100-120 million. There are three lending groups on the Dex One side and one consolidated lending group on the SuperMedia side, and management is working with agents and representatives from each, Dex CFO Greg Freiberg said during the same call. The process would include changing covenant levels for Dex’s bank debt, according to Freiberg, and there will be an amend-and-extend process that involves all of the debt, aiming for the nearest maturity of 2016, he said.
Consent needs to be obtained from 100% of SuperMedia’s and Dex’s respective lenders and to the amendment and extension of their respective credit facilities, according to the announcement. In response to an analyst comment that “100% is always a tall order,” SuperMedia CFO Samuel Jones said on the call that “the transaction and the nature of [the requirement] and the benefits that will accrue to the respective lender groups are sufficient to achieve that.”
Per the details of the proposal, SuperMedia stockholders will own 40% and Dex stockholders 60% of the combined company. Each outstanding share of Dex common stock will be converted into the right to receive 0.2 shares of the new company’s common stock and each outstanding share of SuperMedia will be converted into the right to receive 0.4386 shares of the new company. Outstanding SuperMedia stock options will be cancelled and settled in cash. All other outstanding SuperMedia equity will convert into common stock.
SuperMedia CEO Peter McDonald will be CEO of the combined company, while Dex director Alan Schultz will become chairman of the board. Dex can appoint five directors, SuperMedia four, and they’ll jointly appoint one.
While the merger is still subject to many regulatory approvals and consents from lenders, the companies expect the merger to close in the fourth quarter, according to the announcement.
Dex One is a Cary, N.C.-based directory publisher and marketing-services company. The issuer was known as R.H. Donnelley before it emerged from Chapter 11 in February 2010. Dallas-based directory SuperMedia emerged from Chapter 11 in January 2010. Under its reorganization plan, the former Idearc reduced its debt from $9.3 billion to $2.75 billion of secured bank debt. – Max Frumes