Double Bankruptcy Required for Dex One / SuperMedia Yellow Pages Merger?!?

by Chris Silver Smith

In nothing short of earth-shattering news, it was reported that the Dex One – SuperMedia yellow pages companies merger is apparently on the rocks due to the companies’ creditors being unwilling to accept financial terms. Worse yet, the U.S. Securities & Exchange Commission filing states that the companies might have to restructure under a Chapter 11 bankruptcy in order to make the merger deal work!

Quoted from the Form 8-K filed by Dex One:

In light of the current negotiations, however, Dex One recognizes that the parties may not be able to obtain sufficient approval from the senior secured lenders to any proposed amendments to the parties’ respective credit agreements. Therefore, possible alternatives to the current transaction structure to effect the Merger are under consideration, including a “prepackaged” restructuring of the parties’ senior secured indebtedness through proceedings instituted under Chapter 11 of the Bankruptcy Code to implement possible amendments that may garner sufficient, though not unanimous, support from the parties’ respective lenders, while otherwise maintaining the basic economic terms of the Merger Agreement.  However, there can be no assurance that Dex One and SuperMedia can effect a transaction through an alternative structure, that the necessary consents will be obtained, or that the Merger will be consummated.

SuperDex! Dex One - SuperMedia MergerIf you haven’t kept up with recent years’ history, the surreal part of this is that both companies already emerged from Chapter 11 bankruptcy restructuring not that long ago. In June of 2009, R. H. Donnelley Company filed for bankruptcy, and Dex One rose from its ashes in February of 2010. Idearc Media, earlier known as Verizon Information Services, had been spun off from Verizon with an irresponsibly high debt load, and as a result filed for Chapter 11 bankruptcy in March of 2009, later to emerge from the rubble as SuperMedia in December of 2009.

The Triangle Business Journal headline reports that bankruptcy is a possibility for Dex One, perhaps because the filing states that “Dex One recognizes…”. However, the wording is such that it clearly states that possible alternatives include restructuring of the “parties’ senior secured indebtedness” — the plural is used, indicating both companies could restructure!

Clearly, those holding debt instruments over the companies feel that the current valuation for an exchange of some sort would leave them with insufficient value after the fact if a merger were to go through. There’s not enough information to tell whether some of the debt holders are grasping onto an unrealistic/perceived value concept they had for one or both companies in the past, and are insisting they get that expected ROI, or perhaps both companies continue to bleed from print advertising degradation resulting in the companies being increasingly unable to repay on debt.

Either way, this sort of lovers’ spat between the two companies on the way to the altar is not a good sign. One can’t help but imagine that if one or both companies bring a Chapter 11 restructuring proposal before a judge at this point, he or she would have to look upon it with some degree of skepticism — company officers apparently may not have made a realistic projection for restructuring just three short years ago, so are they being properly conservative in a new restructuring, now?

Even more heartbreaking, the outlook for both companies — or a merged Dex One / SuperMedia — is very poor regardless of the outcome. It clearly signals yet further, deep financial cutbacks would be happening either way, and without being able to focus on innovation and future development there will be no longterm viability.


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