Dex Media, Inc.

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Dex Media, Inc.

198 Inverness Drive West
Englewood, Colorado 80112
Telephone: (303) 784-2900
Fax: (303) 784-1398
Web site:

Public Company
Incorporated: 2002
Employees: 3,000
Sales: $1.63 billion (2003, includes West Predecessor revenue)
Stock Exchanges: New York
Ticker Symbol: DEX
NAIC: 511140 Directory and Mailing List Publishers

Dex Media, Inc. is the official publisher of telephone directory white pages and yellow pages for Qwest Communications. Dex distributes the directories in 14 states: Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming. Although the directories are distributed for free, income is derived from more than 400,000 local businesses and 4,000 national advertising accounts. Independent directories, in markets not served by Qwest, are published and distributed in El Paso, Texas, and Lincoln, Nebraska. In addition to the standard directories, Dex publishes an On-the-Go directory, a nine-inch by six-inch directory designed to be kept in automobiles. Available in major metropolitan cities, On-the-Go directories feature maps, shopping and entertainment guides, as well as telephone and address information for central city businesses. Dex publishes bilingual, English-Spanish directories for more than 20 markets. Dex publishes CD-ROM directories and its Internet Yellow Pages directory is available at In addition to providing search capacity for the content of business advertisements, accesses more than 15 million basic business listings and 200 million residential listings nationwide.

Forming the Company in 2002 to Acquire Former AT&T Directory Publisher

Dex Media, Inc. originated as a regional publisher of the Yellow Pages, with operations beginning in Cheyenne, Wyoming, in 1881. A century later, as part of AT&T, the company became Mountain Bell Yellow Pages when the U.S. Justice Department divided AT&T into seven Regional Bell Operating Companies in 1984. When Mountain Bell took the name US West, Mountain Bell Yellow Pages became US West Direct. In 1996, US West launched a new brand, US West Dex, using a man with a magnifying glass as the identifying Dex character. When US West and Qwest Communications International merged in 2000, the directory business was renamed once again, to Qwest Dex. Qwest Communications decided to sell its directory businesses to offset rising debt and losses. Qwest Dex generated approximately $1.6 billion in revenue in 2001 and Qwest expected to gain up to $10 billion from the sale. Qwest received several bids from equity investment groups, but questions about Qwest's accounting practices dissuaded several of the interested parties.

In August 2002, Qwest accepted the $7.05 billion bid from Dex Media, though the purchase price was considered low, at only 7.8 times EBITDA, compared with similar transactions in the directories industry. The Carlyle Group, a global private equity company with more than $13.5 billion under management, and Welsh, Carson, Anderson & Stowe, a private equity firm with more than $12 billion under management, owned Dex Media, established for the purpose of acquiring Qwest Dex. Each company planned to invest $750 million of equity toward the acquisition and to fund the balance through bank debt and the sale of high-yield (junk) bonds.

The leveraged buyout occurred in two transactions. Qwest formed Dex Media East LLC and Dex Media West LLC to divide the directory operations according to states that demanded approval of the sale. Advertising income from the Yellow Pages offset lower utility rates for telephone customers, and the sale of the directories raised issues of potential rate increases. In November 2002 Dex Media acquired Dex Media East, the directory business for the states of Colorado, Iowa, Minnesota, Nebraska, New Mexico (including El Paso, Texas), North Dakota, and South Dakota. Dex Media acquired 155 directories in these seven states for $2.75 billion. Dex sold $975 million in junk bonds to leverage the acquisition, $450 million in senior notes at 9.875 percent interest, due in 2009, and $525 million subordinated notes at 12.125 percent interest due 2012. Term loans and a revolving credit facility supplied an additional $1.4 million in funds. The Carlyle Group and Welsh, Carson provided $655 million in equity, about 20 percent of the purchase price.

The $4.3 billion acquisition of Dex Media West, comprising 122 directories in Arizona, Idaho, Montana, Oregon, Utah, Washington, and Wyoming, was completed in September 2003, after approval by state utility commissions. Financing for the acquisition involved the sale of $385 million in senior notes at 8.5 percent interest due in 2010 and $780 million in senior subordinated notes at 9.875 percent interest due in 2013. Term loans and a revolving credit facility provided an additional $2.3 million, and the equity partners contributed $982 million, about 20 percent of purchase price.

Dex Media became the largest privately owned incumbent directory publisher in the world. The acquisitions involved a 50-year exclusive publishing agreement with Qwest Corporation, to publish all Qwest directories until 2052, and a 40-year noncompete agreement with Qwest Communications International. In addition, Dex Media agreed to retain management, with George Burnett becoming president and chief executive officer.

With an aggregate debt of $5.8 billion, only one other leveraged buyout exceeded the value of the Qwest Dex acquisition, that of RJR Nabisco in 1989. In late 2003 Dex restructured and repriced its Dex Media East debt for lower interest rates. Additional funding obtained from aggregate sales of its senior notes and senior subordinated notes at Dex West provided $1.25 billion in funds, which Dex Media transferred to Dex Holdings to pay a $1 billion dividend to The Carlyle Group and Welsh, Carson.

Competitive Environment in 2003

The Carlyle Group and Welsh, Carson entered the directory business as it became more competitive. Independent directories, those not published by or for telecommunications companies, proliferated during the 1990s and continued to expand in the early 2000s. For instance, Verizon Information Services entered 15 markets with competitive directories in 2002, and competitive directories were introduced into six of Dex's top ten markets in 2003. First Qwest Dex, then Dex Media responded by introducing directories in markets not served by Qwest Communications. In 2001 Qwest launched the company's first independent directory in El Paso, Texas, a smaller version of the local incumbent directory. Dex Media continued that strategy by introducing a competitive directory in Lincoln, Nebraska, in early 2003, where incumbent directory publisher Alltel dominated the market and independent publisher Yellow Book USA had already established a presence. Dex did not place much emphasis on independent directories, as independent publishers quickly launched directories in potential markets and Internet and bilingual directories held greater potential for return on investment.

Spanish-language directories or advertising sections provided new revenue sources in a market where demand was strong, but competitors sought revenue from this market as well. Whereas directories had previously included only a Spanish-English index to the yellow pages, Dex's bilingual directory added a complete Spanish-language section after the English yellow pages. In early 2003 Dex launched its first bilingual directories in Albuquerque, Denver, Phoenix, and El Paso. Additional bilingual directories followed in Pueblo, Colorado; Tucson and Nogales, Arizona; Las Cruces and Santa Fe, New Mexico; Salt Lake City, Utah; and the Kenniwick, Richland, and Pasco Tri-Cities area in Washington. The company launched a total of 20 bilingual directories in 2003; Dex faced a competitive market for bilingual advertising, however, as Verizon already published bilingual directories in more than 50 markets. In Greeley, Colorado, Dex faced strong competition from Hispanic Publications' Spanish-only directory, so the company decided to wait before issuing a directory there.

Another area where Dex encountered new competition, but held greater competitive strength, involved its Internet directory. As consumers used print directories less often and online directories more often, Dex faced competition from and Version, the latter launched in March 2004, as well as from popular search engines that catered to consumer searches for local, everyday requirements. For instance, Google began to seek new sources of revenue by selling access to results pages to local businesses in its Local Search, a test program for directory assistance online. Dex leveraged its competitive advantage in Yellow Pages publishing with an enhanced Internet search system, using state-of-the-art technology to extend search capability to the content of the more than 240,000 display advertisements from Yellow Pages in the company's directories in 14 states. The new information delivery system provided multiple search options in a single search box, allowing consumers to search by product and brands, hours of operation, payment options, and locations. For instance, a simple search for plumbers in Minneapolis returned a list of 1,200 plumbers, but a search for "plumbers Sunday MasterCard" returned a list of 20 businesses. Dex supported its in-depth search capacity by increasing system speed tenfold for rapid information delivery. An industry first, the enhanced online directory provided Yellow Pages advertisers with greater value than that available from other online business directories.

Company Perspectives:

Thanks to our scale and incumbent position, we have a substantial competitive advantage over independent directory advertising providers. During 2003, we printed and distributed approximately 43 million directories and had more than 400,000 local advertising accounts consisting primarily of small and medium-sized businesses and more than 4,000 national advertising accounts. As the incumbent directory publisher in the Dex States, Dex directories benefit from strong brand recognition as the official Yellow Pages.

Dex extended an introductory offer on the print/Internet bundle to local businesses during 2003 in preparation for a 2004 launch of Along with sales of other new products, revenue increased approximately 3 percent at Dex Media East, to $668.8 million, slightly more after the effects of the purchase method of accounting for acquisition. At Dex Media West, revenue declined about 6 percent overall, but showed an increase of approximately 2 percent when excluding the effects of purchase accounting. Combined with the West Predecessor company, Dex Media West reported $844.2 million in revenue. Dex Media East operated at a loss of $40.1 million due to debt service, financing fees related to the Dex West acquisition, and the costs of transition to a stand-alone company. The West Successor (Dex West from acquisition September 10, 2003) recorded a loss of $10 million on $199.4 million in revenue. Strong cash flow allowed Dex to pay debt early, however, for a total of $405 million in debt paid in 2003.

The company launched its enhanced Internet portal at dex in January 2004, renamed from The name change occurred in conjunction with a change in the print publications from the name Qwest Dex to simply Dex. A new logo design accompanied the name change, but the yellow and blue colors were retained for public familiarity. To maintain the company's identity as the incumbent publisher for Qwest, the descriptor "Official Directory of Qwest" followed the Dex name. To attract attention to the change, Dex customized covers of print directories to local communities, using photos of identifiable landmarks. An advertising campaign in 13 cities, involving television, radio, and outdoor advertising, used the tagline "Dex Knows" to affirm the company's lead in directory information assistance.

In March 2004 the Yellow Pages Integrated Media Association recognized Dex Media with four Industry Excellence Awards. These included two Gold Awards, one in the Advertising and Promotion category, for its Surprise and Delight Reward and Recognition Program, designed to build strong customer relationships in direct marketing. In the Process Innovation category, Dex was recognized for its Local to National Transfer Process, intended to support certified marketing professionals attending to national accounts. A Silver Award for Market Innovation acknowledged Dex's ValAd Program for underdeveloped business headings in the Yellow Pages. Dex Recycling/Competitive Response Initiative to benefit local charities and improve directory recycling rates earned a Bronze Award in the Distribution category.

Initial Public Offering of Stock in 2004

In June 2004 Dex Media announced its intention to offer 53 million shares of stock to the public, including 15.3 million primary shares from the company and 37.8 million shares from The Carlyle Group and Welsh, Carson; the stock offering involved approximately 35 percent of the ownership interest. The company intended to offer shares at $23 to $26 each, but slow market trading prompted the company to lower the price to $19 per share immediately before the initial public offering (IPO), completed on July 24. Dex actually sold 19.7 million primary shares and applied net proceeds of the IPO, at $352.5 million, to pay debt and to redeem $127.7 million in preferred stock from its equity partners, leaving the company with only one class of stock.

Dex continued to pursue its primary areas of growth, bilingual publications and online access to A distribution agreement, effective August 1st, with InfoSpace, Inc., provided access to dexonline to six million users of Infospace's success in generating traffic to the Switchboard site prompted Dex to make the agreement. In the Denver area Dex introduced two community directories with a Spanish-language yellow pages section, for the Northglenn-Thornton-Commerce City area and the Central-Downtown Denver area. Mango-colored pages differentiated the Spanish-language section, while the tab, "En Espanol," marked its beginning. The section included a 24-page directory providing emergency contacts and information on government agencies, educational institutions, and business assistance organizations.

Principal Subsidiaries

Dex Media East Inc.; Dex Media East Finance Co.; Dex Media East LLC; Dex Media Service, LLC; Dex Media West, Inc.; Dex Media West Finance Co.; Dex Media West LLC.

Key Dates:

Dex Media, Inc. is formed for the purpose of acquiring Qwest Dex telephone directories; Dex Media East is acquired.
Dex Media West is acquired; English-Spanish bilingual directories are introduced in 21 markets.
2004: is launched with leading edge advertisement content search capacity; Dex holds its initial public offering.

Principal Competitors

Google, Inc.; Hispanic Publications, Inc.; TransWestern Publishing Company LLC; Verizon Information Services; Yahoo!, Inc.; Yellow Book USA.

Further Reading

"Arizona to Consider Qwest Requests for Directory Sale, Long-Distance Service," Knight Ridder/Tribune Business News, August 30, 2003.

"Dex Adds Competitive Book in Lincoln, Launches Bilingual Books," Yellow Pages & Directory Report, February 28, 2003.

"Dex Expands Plans for Bilingual Books," Yellow Pages & Directory Report, April 11, 2003.

"Dex Introduces Spanish-Language Section in Denver," Yellow Pages & Directory Report, July 30, 2004.

"Dex Launches Ad Campaign to Combat Yellow Book in Twin Cities," Yellow Pages & Directory Report, May 14, 2004.

"Dex Media East Restructures, Reprices," Bank Loan Report, October 27, 2003.

"Dex Media Makes Debut," Daily Deal, July 23, 2004.

"Dex Media West LBO Deal Hits Ground Running," Loan Market Week, August 18, 2003, p. 1.

"Dex Prices $975M of Junk," Daily Deal, October 31, 2002.

"One Bid Rejected for Dex, Qwest Seeks $1B Upfront," Yellow Pages & Directory Report, May 24, 2002.

"SBC, Dex Expanding Spanish-Language Directory Products," Yellow Pages & Directory Report, May 14, 2004.

Smith, Jeff, "Dex Media's Ad Campaign Throws Book at Competitor," Rocky Mountain News, June 18, 2004, p. 6B.

, "Turning a Page; Dex Media Chief Says IPO Will Help Company Reduce Its Debt," Rocky Mountain News, July 24, 2004, p. 7C.

"An Unusual Pair," Yellow Pages & Directory Report, August 30, 2002.

Mary Tradii