Sophie Cousineau
La Presse
Let's say you're given a few years to destroy Yellow Media, the former division of Bell Canada, which in its best year in 2007 posted a net profit of $ 528 million on a turnover of 1.63 billion. How you would do it?
Here is a 10-point strategy for the board of directors.
1) Although you know that the printed telephone directories are condemned to die, you redeem all directory publishers in the country to establish a national presence, including Advertising Directory Solutions (ADS) in 2005, MTS Media in 2006 and Bell Aliant Communications in 2007.
2) You pay top dollar. It is notable in the acquisition of ADS, the publisher of SuperPages in British Columbia and Alberta. Yellow Pages Group (the name of Yellow Media at the time) provides $ 2.55 billion in cash to the private equity firm Bain Capital. The U.S. fund had got hold of ADS five months earlier at a price of 1.99 billion. With the rapid return of 28%, Bain manages a big deal. There is the "? Smart capital?" (Smart money) and "? Capital fooled?".
3) An independent analyst of the firm Veritas Investment Research believes that these acquisitions in series - there are 4.5 billion since 2003?! - Mask a slowdown in growth. You do not know. Five years later, you are forced to write off $ 2.9 billion in intangible assets.
4) Lack of pot, the federal government without warning change the rules on income trusts in the fall of 2006. Yellow Media, a darling of the stock market is heavily affected. It must pay tax?! Rather than pay the debt of Montreal society, you shrug your distributions paid to unitholders in order to reassure the markets. At $ 1.09 per unit, these distributions represent a very high proportion (84%) of cash available in 2007, according to analysts' forecasts. You repeat the process again, the distribution reached $ 1.17 this time. Alouette?!
5) The reality catches up with you in 2009 and 2010. Even if it's been years since your CEO talks about turning on all digital platforms, new media revenues fail to offset the slowdown of your traditional, still making up the overwhelming majority of your income. In May 2009, you proclaim the first of a series of reductions of your distributions / dividends, which fell by 80 cents to $ 1.17 per year. You do not put your business model in question and you keep the management team in place, including Marc Tellier, boss since 2001.
6) You must convert your income trust to a corporation. The conversion operation and promotion costs overpriced, or 48.5 million, including $ 30 million only in conversion costs. This is 20 times higher than the average analyst calculates a National Bank Financial. Coincidentally, these high costs, which are excluded from the calculation of operating income, allows members of senior management to touch, but only just, an avalanche of stock options. And that, under a new long-term incentive that you have adopted, at the same time you have reduced to 45 the age at which Marc Tellier can retire without actuarial penalties. You close your eyes.
7) After the operation, your distribution of 80 cents has turned into dividend of 65 cents and 15 cents and zero percent. In all cuts (except the last, it goes without saying), you swear on your mother's head that the dividend payment to shareholders will be maintained. Investors - the poor?! - You still believe your word, although they are fewer and fewer. Your actions, which have already exchanged more than $ 16, not worth a handful of pennies.
8) To reduce the burden of your debt, you sell the only activity that works well and has a bright future?: Sites and publications related to the automotive sector, representing 85% of the profits from your local Trader. You conclude the sale at a loss in the hope (vain) to avoid a discount of credit rating agencies. Your long-term debt, which amounted to $ 2.2 billion at June 30, remains high, even if this transaction and other allowed reimbursements totaling $ 700 million this summer.
9) You describe yourself as misunderstood and make sure that your company will eventually reap the benefits of its new business strategy, Solution 360 degrees. Looking to support you on your strength, your long-standing relationship with small businesses and SMEs. But you know in your heart of hearts that your services require an army of officials. That profit margins are low. That revenues are not recurring. That competition is intense in this space where barriers to entry are almost non-existent. Recognizing this, you pray.
10) The same bankers who have allowed you to pay what was left of your dividend you have made an appointment in February 2013. At that time, Yellow Media must repay line of credit of $ 500 million. You pray.
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