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Dex One (DEXO), SuperMedia (SPMD) Enter Merger Agreement

August 21, 2012 7:05 AM EDT Send to a Friend
Dex One Corporation (NYSE: DEXO) and SuperMedia Inc. (NASDAQ: SPMD) today announced that their Boards of Directors have approved a definitive agreement under which Dex One and SuperMedia will combine in a stock-for-stock merger of equals, creating a national provider of social, local and mobile marketing solutions through direct relationships with local businesses.

Upon closing of the transaction, Dex One shareholders are expected to own approximately 60 percent and SuperMedia shareholders are expected to own approximately 40 percent of the combined company.

The combined company will have over 5,800 employees, including more than 3,100 consultants who establish direct relationships with local business owners and offer a full suite of marketing solutions to help them retain and add customers. Initially, the combined company will have relationships with more than 700,000 businesses.

The business will benefit from improved operating scale, significant synergies and enhanced cash flow. On a pro-forma basis, for the full year 2011, the combined company would have reported $3.1 billion in revenue, $778 million in non-GAAP operating income (adjusted to exclude impairment charges of $1.8 billion) and $1.2 billion in non-GAAP adjusted EBITDA. Pro-forma cash from operations for the full year 2011 would have been $657 million, and non-GAAP free cash flow would have been $610 million. For the first half of 2012, the combined company would have reported pro-forma revenue of approximately $1.4 billion, $290 million in operating income and $586 million in non-GAAP adjusted EBITDA. First half 2012 pro-forma cash flow from operations for the combined company would have been $340 million and non-GAAP free cash flow for the period would have been $322 million.

Financial Benefits for Shareholders and Lenders

The combined company estimates it will realize $150-$175 million of annual run rate cost synergies by 2015 due to scale efficiencies; rationalization of duplicative solutions, products and vendor relationships; headcount reductions; and adoption of the most cost effective management and operating practices and technology platforms and systems from Dex One and SuperMedia. The combined company expects to incur $100-$120 million of one-time transition expenses to achieve these synergies.

The combined company also will benefit from the application across a larger territory of the best of each company’s social, local and mobile marketing solutions, combined with the advice of its marketing consultants, to create and maintain local business relationships.

The combined company expects to preserve access to Dex One’s remaining tax attributes and generate future attributes, in aggregate totaling as much as $1.8 billion, to offset income attributable to the combined company following the completion of the transaction.

Organization and Leadership

Under the terms of the definitive merger agreement, Alan Schultz, chairman of the board of directors of Dex One, will be chairman of the board of directors of the combined company. The president and CEO of SuperMedia, Peter McDonald, will become CEO. Alfred Mockett, Dex One’s CEO, will continue to lead Dex One through the close of the transaction, at which point he will step down.

Following the close of the transaction, the combined company’s board of directors will include Schultz, McDonald, four additional members from the Dex One board, four additional members from the SuperMedia board and one independent director to be selected by the new board. The CFO of SuperMedia, Samuel (Dee) Jones, will become the CFO of the combined company.

The combined company will be called Dex Media. This is not intended to be a new brand in the marketplace. The Dex One and SuperMedia names and the brand names for their solutions and services have significant value with businesses and consumers. Decisions regarding if and when to implement brand and name changes in local markets will be made after further evaluation and planning. A decision regarding the location of the new company’s headquarters and other principal locations also will be made during the course of merger integration planning.

Transaction Structure

Under the terms of the agreement, Dex One and SuperMedia shareholders will exchange their shares for shares in Dex Media. Dex One shareholders will receive 0.20 shares for each Dex One share they own, and Super Media shareholders will receive 0.4386 shares for each SuperMedia share they own.

Approvals

The transaction must be approved by the stockholders for the two companies and is subject to negotiation of acceptable credit agreement amendments with both companies’ lenders. SuperMedia and Dex One intend to file a joint proxy statement/prospectus with the Securities and Exchange Commission (“SEC”) to submit the merger to their stockholders for approval. The transaction is expected to close in the fourth quarter of 2012.




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