The Association of U S West Retirees



Chairman opts for cash

Burnett, former CEO of Dex Media, dumps his Donnelley shares

By Jeff Smith and David Milstead

Rocky Mountain News
Friday, April 6, 2006


Former Dex Media CEO George Burnett has dumped nearly all of his stock for a profit of $21.6 million just weeks after praising the merger between the Arapahoe County telephone directory publisher and R.H. Donnelley.

Burnett, now Donnelley's chairman of the board, sold the Donnelley stock in a three-day flurry March 22-24, according to federal regulatory filings.

"It's obviously never a nice sign when you have a chairman cash out this much of his holdings in such a short period of time," said Jonathan Moreland, director of research at, which provides independent analysis of legal insider trading. "Obviously, if he's that clueless, you wonder why he holds the job, and I doubt if he's that clueless."

Moreland said it doesn't matter to him that Burnett is considered a nonexecutive chairman who isn't active in the company's day-to-day operations.

A person familiar with the stock sales said some large institutional investors also expressed their displeasure to Donnelley about Burnett selling so much of his holdings in such a short period of time.

Burnett, who has an office in Dex headquarters and lives in Colorado, didn't respond to an e-mail, and Donnelley doesn't comment about its stock. Several major investors either declined to comment or didn't return phone calls.

Burnett, 50, worked as Qwest Communications' senior marketing director. He was put in charge of Dex after it was sold by Qwest in 2002 for $7.05 billion to the leveraged buyout firms of Welsh Carson Anderson & Stowe and Carlyle Group.

He ushered Dex through an initial public offering in 2004 and then the recent $9.4 billion sale, including debt, to North Carolina-based R.H. Donnelley. That sale created the country's third-largest Yellow Pages company. Dex has nearly 2,500 employees and publishes telephone directories for Qwest.

Dex Media shareholders got a combination of cash and Donnelley shares in the deal, which closed Jan. 31. On that day, Burnett said in a statement, "This is a merger of two strong companies - both market leaders - that will be even stronger together."

But by March 22, Burnett was busy exercising options he had received in 2002 and 2003 when Dex was still a private company.

He exercised all of his remaining stock options - 442,049 - in a three-day period, selling the shares for a pretax profit of $21.6 million, according to filings with the Securities and Exchange Commission.

He also sold 19,705 other shares for a gross of $1.2 million, sales in which the profit couldn't be calculated. Burnett has just under 60,000 shares remaining, including 24,395 held in trust for his children.

Donnelley doesn't have a large public float of its stock, and Burnett's sales represented more than 15 percent of the total trading volume during those three days. The stock declined by about 5 percent in the days following Burnett's sales and currently is trading at $57.87, near its 52-week low of $55.20.

That's despite the fact that the major analysts covering the stock have either "buy" or "neutral" ratings.

Burnett isn't the only Donnelley insider who has sold stock in recent weeks. But the closest in volume is Simon Greenman, a senior vice president who made $884,000 exercising his stock options. A number of other executives recently have made small sales or buys.

Although Burnett's profits are much lower than the nearly $250 million made by former Qwest Chief Executive Joe Nacchio during the telecom bubble, Nacchio sold his stock over years - rather than days - and left a larger percentage of unused options on the table when he was ousted in June 2002.

Moreland said that if an insider needs to move a large block of stock, there are plenty of bankers or financial intermediaries to help him do it, such as through a private sale, so it's not as obvious and doesn't affect the stock.

If an investor wanted to focus on the positive, Moreland said, one could say that Donnelley stock is up nicely over the past couple of years and that it's not surprising for insiders to be taking some profits.

Moreland said he wouldn't necessarily sell Donnelley stock if he owned it, or even short it - betting the price would go down - based on Burnett's sales. But he also said he wouldn't waste his time analyzing whether to buy the stock.

"Why spend time trying to read this guy's tea leaves?" Moreland said, adding there are plenty of other companies where insiders are buying stock even after the stock price has doubled.

"There are more interesting companies with . . . stronger insider (buying) patterns and frankly more exciting growth," Moreland said.

Stock sale

George Burnett's stock option sales:

Number of shares sold: 442,049

Option exercise price: $10.78

Stock sale price: $59.14-$59.90

Gross proceeds: $26.4 million

Pretax profit: $21.6 millionSource: Federal Regulatory Filings

R.H. Donnelley



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