YELL

A Cross Border Valua.on

Pro

Con

Eec.ve Monopoly
Mature business
(85% of the market)
Heavily Regulated
Stable, no Fluctua.on
Slowing Growth
with the Economic Cycle
Cash Genera.ng
Four new Innova.ve
lines of Business

Ad Price
Not within the
companys Control

Number Of Ads Sold

Within the Companys
Control

Value Drivers

The UK Business

Pro

Con

Growth Poten.al
Compe..on
New Products and
High investment in
lines
the rst years
Leading Independent Uncertain prot
Directory Service
Provider

EBITDA Margin

Growth driven
by Number of
new Launches
Value Drivers

The US Business

Number of
Directories
Published

Is Yell a good LBO?

The Market

3G spectrum auc.on in
Europe in 2000
Operators who failed to bid
would lose out the next
phase, therefore Telecoms bid
high and accumulated debt
When the DotCom bubble
burst, investors lost
condence and Telecoms
were penalized

The Company

BT is under pressure to reduce

its leverage
Stock price declined 15%, while
the FTSE100 only fell by 5%
Tried to oat Yell, excluded
because of the low stock price
1.8B loss in 2001 and massive
M&A expenses strain the
Balance Sheet

Why does BT want to sell?

Assump>ons UK
Growth
Own assump.on
Own assump.ons
Ad Price
()

2002
6%

2003
6%

2004
6%

2005
6%

2006
6%

2007
6%

622

599

575

552

530

509

Assump>ons US
Ebitda Margin
Management
Management
Number of launches
(number)
Growth
Own assump.ons

2002
17%

2003
19%

2004
21%

2005
23%

2006
25%

2007
25%

8%

8%

8%

8%

8%

8%

The management growth rate is too op.mis.c. We adjust the projec.ons, using historical growth rates.
In the UK, we believe the An.trust commission will impose a more restric.ve cap on taris increase.
We accept management assump.on for number of new launches and EBITDA margin for the US.
In the US, we assume the revenue from New Launches to stabilize acer 2005.

UK and US Assumptions

Cash Flow UK (000)

EBIT

234,301

229,147

237,052

240,955

247,735

253,844

Tax without debt

70,290

68,744

71,116

72,287

74,320

76,153

Deprecia>on

6,130

8,850

8,400

7,630

8,000

8,000

Change in NWC

2,403

2,337

2,020

2,056

2,092

2,129

10,220

9,730

9,230

8,380

8,000

8,000

CF

157,517

157,186

163,086

165,863

171,323

175,562

CF from other businesses

(12,641)

(8,238)

1,362

1,956

10,000

20,000

TOT CF

144,876

148,948

164,448

167,819

181,323

195,562

CapEx

Cash Flow US ($000)

Net Income

53,981

63,715

70,569

82,713

115,713

122,016

Deprecia>on

6,240

7,910

7,430

8,810

8,000

8,000

Change in NWC

40,553

17,180

10,280

19,447

16,728

17,535

CapEx

10,600

8,700

8,170

8,990

8,000

8,000

CF

9,068

45,745

59,549

63,086

98,984

104,481

CF in

6,335

32,012

41,672

44,209

67,937

71,710

Cash Flows

$/ spot rate
$/ 1-year forward mid rate
$/ 2-year forward mid rate
$/ 3-year forward mid rate
$/ 4-year forward mid rate
$/ 5-year forward mid rate

1.439 bid1.44 ask

1.4315
1.4290
1.4270
1.4245
1.4570

We use the forward rates to convert the US cash Flows for every year into
For years later than 2006, we use the 5 year forward rate

Currency Issues

Debt ( Million)

Loan

Amount

Interest Rate
175
175
500
100

Senior B Interest
Senor C Interest
High Yield Interest
Vendor
Period

Beginning amount

1
2
3
4
5
6
7

600
600
550
475
375
250
125

Interest Payment

8.15%
8.40%
10.75%
Not payable
Interest Payment
47.40
47.40
43.45
37.53
29.63
19.75
9.88

Maturity

14.26
14.70
53.75

8
9
10
12

Repayment

Ending Amount

0
50
75
100
125
125
125

600
550
475
375
250
125
0

We assume the en.re debt will be supported by the UK side, since it is denominated
in and the UK business has bejer cash ows to repay it
Therefore, we calculate the Tax Shield as part of the UK business, with a 30% tax rate

Debt

Which ?

Which Rf?

We use
McLeodUSA,
WorldPages,
Pagine Gialle,
Telefonica and
Eniro as
comparables,
We use the MSCI
, since the
business is both
US and UK
We unleveraged
the equity beta
And we
calculated the
average

1.13

Which equity
Premium?

Since we are
valuing a UK
company, we use
the UK risk Free
rate
We use the 10
year rate, since it
is more
consistent with
our investment
horizon

4.94

Rf

Discount Rate

We use the UK
market premium
It is not
drama.cally
dierent from
the US one
And the business
is based in the
UK, so we
assume the
return on capital
must be
matched to
opportuni.es
available in the
UK

5.60

Rp

11.26

Re

Discount Rate

We calculate the Tax Shield and

discount it at the weighted
average cost of debt
Rd = 8.97%

We calculate the present value

of FCF, discoun.ng them at the
cost of capital

Tax Shield
PV Tax
PV CF
TV
Pv Tv
Tot

39,034
35,820
130,219
2,190,361
1,155,002
2,007,806.74

PV UK (000)
39,034 37,849 36,071 33,701 30,739
32,870 29,248 25,579 21,930 18,355
120,335 119,416 109,535 106,375 103,122
8.63

Re = 11.26%
PV CF
TV
Pv Tv
Tot

5,694
1,027,857
542,001
710,342

PV US (000)
25,862 30,261
5

28,855

39,856

37,813

We calculate the Terminal value,

using dierent growth rates
gUK = 3%
gUS = 4%

APV

UK
Business

US
Business

2B

0.7B

EV
2.7B

Risks

UK Business

US Business

Management
Scenario

Management Growth
Management Ad Price

Management Management Growth

Management New Launches
Scenario

Our Scenario

Growth Assump.on 6%
Capped Price

Our Scenario

Growth Assump.on 8%
Management New Launches

Worst Case

Own growth 8%
Management New Launches
Decreased New Launches
revenue (5,000)

Worst Case

Slower Growth 4%
Capped Price

Sensitivity Analysis

UK

US

Tot

EV/EBITDA

Management

2.99

0.78

3.77

11.13

Own

2.01

0.71

2.72

8.24

Worst

1.92

0.60

2.53

8.49

Sensitivity Analysis 2

Any Questions?

APPENDIX


Year

Manageme
nt
Adver.sement Volume (000)
Projec>on
Adver.sement Volume growth

Weighted Average Adver.sement Price ()

Own
Adver.sement Volume (000)
Projec>on

Actual
Actual
Projected Projected Projected Projected Projected Projected
Comments
31-Mar-00 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07

Adver.sement Volume growth

Ina.on
Weighted Average Adver.sement Price ()
Adver.sement Volume (000)
Worst Case
Weighted Average Adver.sement Price
Discounts and free ads (000)
Direct costs (000)
Overhead costs (000)a
Costs and Change in WC (000)
Cash Flow Capex (000)
projec>ons Deprecia.on (000)
Other U.K. businesses:

Capital cash ows acer taxes (000)

Year

Manageme New launches (number)
nt
Total Revenues ($000)
Projec>ons Revenue Growth
New Launches
Own
Projec>ons Revenue growth
EBITDA ($000)
Margin and
Capex ($000)
Costs
Deprecia.on ($000)

813

853

927

991

1,058

1,126

1,194

1,254

641

645

9%
644

7%
648

7%
649

6%
649

6%
649

5%
649

813

853

904

958

1016

1077

1142

1210

6%

6%

6%

6%

2.40%
622
887
622
78,180
195,972
74,930
2,178
10,220
6,130

2.30%
599
940
599
86,585
201,742
77,137
6,000
9,730
8,850

2%
575
997
575
84,324
206,649
79,013
8,497
9,230
8,400

2%
552
1057
552
86,615
211,278
80,783
6,300
8,380
7,630

-12,641

-8,238

1,362

1,956

42,402
47,276
180,479 187,395
102,530
88,870
10,570
12,772
7,380
9,760
5,530
5,370


-4,566

-14,438

the market is not growing

6%
anymore
2%
2%
6% Cap on tari Increase
530
509

1120
1187

530
509

85,366
86,049

214,996 216,716
30%
82,204
82,862

4,375
2,023
20%
8,000
8,000

8,000
8,000




Doubau
10,000
20,000

l
6%

Actual
Actual
Projected Projected Projected Projected Projected Projected
31-Mar-00 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07


7
8
7
8
0
0
217,500 330,000 421,600 483,200 544,050 598,600 688,390 757,229


28%
15%
13%
10%
15%
10%


7
8
7
8
0
0


8%
8%
8%
8%
8%
8%

42,000
17% 19.00% 21.00% 23.00% 25.00%
25%
3,698
7,000
10,600
8,700
8,170
8,990
8,000
8,000

7,000
6,240
7,910
7,430
8,810
8,000
8,000

Complete Assumptions

Year
Revenue
COGS
Discounts
Direct Costs
Op Income
Overhead Costs
EBITDA
Deprecia>on
EBIT
Interest
Pre Tax Income
Tax
Net Income

Income statement Management Projec>on (000)

2002
2003
2004
2005
2006
2007
596,988
642,168
686,642
730,774
774,906
813,846
274,152
288,327
290,973
297,893
300,362
302,765
78,180
86,585
84,324
86,615
85,366
86,049
195,972
201,742
206,649
211,278
214,996
216,716
322,836
353,841
395,669
432,881
474,544
511,081
74,930
77,137
79,013
80,783
82,204
82,862
247,906
276,704
316,656
352,098
392,340
428,219
6,130
8,850
8,400
7,630
8,000
8,000
241,776
267,854
308,256
344,468
384,340
420,219
130,113
130,113
126,163
120,238
112,338
102,463
111,664
137,742
182,094
224,231
272,003
317,757
33,499
41,322
54,628
67,269
81,601
95,327
78,164
96,419
127,465
156,961
190,402
222,430

Income Statement
Management projections, UK

Year
Revenue
COGS
Discounts
Direct Costs
Op Income
Overhead Costs
EBITDA
Deprecia>on
EBIT
Interest
Pre Tax Income
Tax
Net Income

Income statement UK (000)

2002
2003
2004
2005
2006
2007
562,201
573,884
583,984
594,262
604,721
615,364
246,840
258,750
259,519
264,894
266,782
270,658
78,180
86,585
84,324
86,615
85,366
86,049
168,660
172,165
175,195
178,279
181,416
184,609
315,361
315,134
324,465
329,368
337,939
344,706
74,930
77,137
79,013
80,783
82,204
82,862
240,431
237,997
245,452
248,585
255,735
261,844
6,130
8,850
8,400
7,630
8,000
8,000
234,301
229,147
237,052
240,955
247,735
253,844
130,113
130,113
126,163
120,238
112,338
102,463
104,188
99,034
110,889
120,718
135,397
151,381
31,256
29,710
33,267
36,215
40,619
45,414
72,932
69,324
77,622
84,503
94,778
105,967

Income Statement
Own Projections, UK

Year
Revenue
COGS
Discounts
Direct Costs
Op Income
Overhead Costs
EBITDA
Deprecia>on
EBIT
Interest
Pre Tax Income
Tax
Net Income

Income statement Worst Case (000)

2002
2003
2004
2005
2006
2007
551,593
563,056
572,965
583,050
593,311
603,754
246,840
258,750
259,519
264,894
266,782
270,658
78,180
86,585
84,324
86,615
85,366
86,049
165,478
168,917
171,890
174,915
177,993
181,126
304,753
304,306
313,446
318,156
326,529
333,095
74,930
77,137
79,013
80,783
82,204
82,862
229,823
227,169
234,433
237,373
244,325
250,233
6,130
8,850
8,400
7,630
8,000
8,000
223,693
218,319
226,033
229,743
236,325
242,233
130,113
130,113
126,163
120,238
112,338
102,463
93,581
88,206
99,871
109,505
123,987
139,771
28,074
26,462
29,961
32,852
37,196
41,931
65,506
61,744
69,909
76,654
86,791
97,840

Income statement
Worst Case, UK

Income statement Management Projec>ons ($000)

Year
2002
2003
2004
2005
2006
2007
364,900
418,400
487,350
533,800
623,590
692,429
Revenue Organic Growth
56,700
64,800
56,700
64,800
64,800
64,800
Revenue
421,600
483,200
544,050
598,600
688,390
757,229
TOT REVENUES
330,867
370,904
413,007
443,026
467,693
519,322
COGS
28,000
32,000
28,000
32,000
-
-
Discounts on new Launches
302,867
338,904
385,007
411,026
467,693
519,322
Costs for old lines
90,733
112,296
131,044
155,574
220,698
237,907
EBITDA
6,240
7,910
7,430
8,810
8,000
8,000
Deprecia>on
84,493
104,386
123,614
146,764
212,698
229,907
EBIT
29,573
36,535
43,265
51,367
74,444
80,468
Tax 35%
54,920
67,851
80,349
95,397
138,253
149,440
Net Income

Income Statement,
Management Projections, US

Income statement US ($000)

Year
2002
2003
2004
2005
2006
2007
356,400
384,912
415,705
448,961
484,878
523,669
Revenue Organic Growth
56,700
64,800
56,700
64,800
64,800
64,800
Revenue
413,100
449,712
472,405
513,761
549,678
588,469
Tot Revenue
323,812
343,779
356,407
377,700
363,659
392,751
COGS
28,000
32,000
28,000
32,000
-
-
Discounts on new Launches
295,812
311,779
328,407
345,700
363,659
392,751
Costs for old lines
89,288
105,933
115,998
136,061
186,020
195,717
EBITDA
6,240
7,910
7,430
8,810
8,000
8,000
Deprecia>on
83,048
98,023
108,568
127,251
178,020
187,717
EBIT
29,067
34,308
37,999
44,538
62,307
65,701
Tax 35%
53,981
63,715
70,569
82,713
115,713
122,016
Net Income

Income Statement
Own Projections, US

Income statement Worst case ($000)

Year
2002
2003
2004
2005
2006
2007
356,400
384,912
415,705
448,961
484,878
523,669
Revenue Organic Growth
35,000
40,000
35,000
40,000
40,000
40,000
Revenue
391,400
424,912
450,705
488,961
524,878
563,669
Tot Revenue
323,812
343,779
356,407
377,700
363,659
392,751
COGS
28,000
32,000
28,000
32,000
-
-
Discounts on new Launches
295,812
311,779
328,407
345,700
363,659
392,751
Costs for old lines
67,588
81,133
94,298
111,261
161,220
170,917
EBITDA
6,240
7,910
7,430
8,810
8,000
8,000
Deprecia>on
61,348
73,223
86,868
102,451
153,220
162,917
EBIT
21,472
25,628
30,404
35,858
53,627
57,021
Tax 35%
39,876
47,595
56,464
66,593
99,593
105,896
Net Income

Income Statement,
Worst Case, US

EBIT
Tax without debt
Deprecia>on
Change in NWC
CapEx
CF
CF from other businesses
TOT CF

EBIT
Tax without debt
Deprecia>on
Change in NWC
CapEx
CF
CF from other businesses
TOT CF

Cash Flow Management Projec>ons (000)

241776
267854
308256
344468
72,533
80,356
92,477
103,340
6,130
8,850
8,400
7,630
2,178
6,000
8,497
6,300
10,220
9,730
9,230
8,380
162,975
180,618
206,452
234,078
-12,641
-8,238
1,362
1,956
150,334
172,380
207,814
236,034

Cash Flow Worst Case (000)

223,693
218,319
226,033
67,108
65,496
67,810
6,130
8,850
8,400
2,403
2,337
2,020
10,220
9,730
9,230
150,092
149,606
155,373
(12,641)
(8,238)
1,362
137,451
141,368
156,735

Cash Flows UK

229,743
68,923
7,630
2,056
8,380
158,014
1,956
159,970

384340
115,302
8,000
4,375
8,000
264,663
10,000
274,663

420219
126,066
8,000
2,023
8,000
292,130
20,000
312,130

236,325
70,897
8,000
2,092
8,000
163,336
10,000
173,336

242,233
72,670
8,000
2,129
8,000
167,435
20,000
187,435

Net Income
Deprecia>on
Change in NWC
CapEx
CF
CF in

Cash Flow Management Projec>ons ($000)

54,920
67,851
80,349
95,397
6,240
7,910
7,430
8,810
44,358
28,403
27,482
25,476
10,600
8,700
8,170
8,990
6,202
38,657
52,127
69,741
4,333
27,052
36,529
48,958

138,253
8,000
41,175
8,000
97,078
66,629

149,440
8,000
31,119
8,000
118,321
81,208

Net Income
Deprecia>on
Change in NWC
CapEx
CF
CF in

Cash Flow Worst Case ($000)

39,876
47,595
56,464
6,240
7,910
7,430
40,553
15,652
11,809
10,600
8,700
8,170
-5,037
31,154
43,916
(3,518)
21,801
30,775

99,593
8,000
16,728
8,000
82,864
56,873

105,896
8,000
17,535
8,000
88,361
60,646

Cash Flows, US

66,593
8,810
17,919
8,990
48,495
34,043

Tax Shield
PV Tax
PV CF
TV
Pv Tv
Tot

Tax Shield
PV Tax
PV CF
TV
Pv Tv
Tot

PV Management Projec>ons (000)

39,034
39,034
37,849
36,071
35,820
32,870
29,248
25,579
135,125
139,265
150,907
154,058
3,644,698
8.67
1,921,891
2,990,772.49

39,034
35,820
123,545
2,088,961
1,101,533
1,921,844.54

PV Worst Case (000)

39,034
37,849
32,870
29,248
114,211
113,815
8.62

36,071
25,579
104,412

Present Values, UK

33,701
21,930
161,135

30,739
18,355
164,590

33,701
21,930
101,690

30,739
18,355
98,836

PV CF
TV
Pv Tv
Tot

PV CF
TV
Pv Tv
Tot

PV Management Projec>ons ($000)

3,894
21,855
26,526
1,164,011
5
613,796
779,938

PV Worst Case ($000)

(4,527)
25,169
31,890
785,034
5
424,071
603,462

31,955

39,089

42,822

31,652

48,613

46,594

Present Values, US