This morning, Greg Sterling reports that SuperMedia and Dex One have entered into a distribution agreement, allowing listings and business content from Superpages to be displayed on DexKnows and vice-versa.
The first thought I had upon reading this was that it’s likely a precursor to a possible merger between the two companies, a little further on down the road.
I’ve been predicting some collapse amongst the players in the yellow pages industry for quite a few years now, and I’ve even stongly suggested (see: What Could Save The Yellow Pages? 10 Ideas) that some of the large YP directory companies might want to merge in order to reduce costs and improve their competitive strength.
There’s also been talk among financial analysts about how the hedge fund, Paulson & Co., Inc., was one of the organizations left with a significant stake in SuperMedia, following the bankruptcy of Idearc. Paulson also holds a small piece of Dex One, following it’s emergence from the former R.H. Donnelley corporation’s bankruptcy and Chapter 11 reorganization. Paulson & Co. have apparently handled other sorts of speculative mergers and acquisitions profitably, so the Wall Street scuttlebutt is that they might have taken stakes in both companies with the intention of pushing them towards a merger from the outset of their bankruptcy kerfuffles.
The official press release about the Superpages/DexKnows distribution aggreement only speaks of how the arrangement will benefit both consumers and advertisers. The announcement might have been timed to precede Directional Media Strategies (DMS), an annual conference of yellow pages industry heavy-weights, hosted by BIA/Kelsey and the Yellow Pages Association.
Beyond the very telling involvement of Pauson Co., this distribution agreement is the very sort of advance preparation that these companies would be likely to undertake prior to a merger. I recall similar steps in Superpages’ history, prior to the GTE and Bell Atlantic mergers which birthed Verizon. Back before Verizon formed, GTE and BA set up a deal whereby Superpages began serving up the internet yellow pages results as a cobrand (whitelabel service) on behalf of Bell Atlantic’s BigYellow.com site.
To be sure, the distribution agreement is mutually beneficial to the two companies, aside from any conjectured merger — both get increased distribution for their content, and both improve the user-experience of their sites. But, such a intensely-friendly deal between two big competitors could also signal that they may be lining up in preparation to become one company.
My opinion is that such a merger would be ultimately beneficial to both companies in the long run, as per my ideas for “saving” the yellow pages. However, in the short term the M&A activities would likely pose considerable distraction from competitive development, and would likely add stress to both company’s employees, particularly following the stressful Chapt 11 stuff. The question will be whether these distractions from much-needed innovative development in internet products will be something that they can realistically recover from, before other speedy players in the local directory info space may take too much market-share.
I’m intending to attend and cover this year’s DMS conference here in Dallas, and I expect there will be a small spate of other interesting developments leading up to it!
Disclaimer: I’m not an investment expert, nor should anyone base investing decisions upon my suppositions. I also have not worked for Superpages for some years now, and I do not have any sort of insider information.