Insiders, executives seeing green
Dex Media sale to bring windfall from profit, options

By David Milstead, Rocky Mountain News
Tuesday, October 4, 2005

Yellow pages?  Try green pages.

Dex Media insiders, from the executives to the original shareholders, will profit handsomely from the sale of the company to R.H. Donnelley.

Welsh, Carson, Anderson & Stowe and The Carlyle Group - the two buyout firms that acquired the Dex business from Qwest in 2002 - have turned an investment of $1.62 billion into $4.31 billion in just three years.

Meanwhile, the top six executives of Dex will make $81 million from the stock options the company granted in 2002 and 2003.  CEO George Burnett will make nearly $29 million.

The Rocky Mountain News calculated these amounts from a review of Dex Media's filings with the Securities and Exchange Commission.

Cash-strapped Qwest sold its Dex phone-book business in 2002, raising $7.05 billion in the process.  But that's not what Welsh, Carson or Carlyle spent - they had to put in only $1.6 billion.  The deal was structured as a "leveraged buyout," where the new owners put in a fraction of the purchase price and finance the rest with debt.  The debt is assigned to the company, not the buyers.

Before Dex ever went public, it paid the two firms $1 billion in dividends.  They got $606 million from the sale of common shares in the July 2004 IPO.

The Donnelley sale will give the two firms $2.1 billion in cash and stock, bringing the total take to $4.3 billion.  That's a 166 percent return in three years.

The Dex executives have a similar quick payoff.  While three of the six executives named in the company's proxy spent time with Qwest's directory division, three others were new to Dex from November 2002 on.

Dex gave its top squad a modest number of options when it was a private company - roughly 15,000 to 55,000 per year, depending on position.  But when the company planned its IPO, it did a 10-for-1 stock split.  That gave the executives hundreds of thousands of options with an exercise price of $4.64.

All of the executives used a chunk of their options before the IPO, then kept the shares.  The remainder of the options now can be used immediately thanks to the "change in control" from the Donnelley sale.

Donnelley's offer for Dex, at Monday's closing prices, equaled $27.22 per Dex share.  The News calculated the executives' option profits by comparing the Donnelley offer with the exercise price for the options used in 2004, as well as the exercise price for the options still unused today.

In addition to Burnett's $29 million, Executive Vice Presidents Robert Neumeister Jr. and Marilyn Neal stand to make $17.4 million apiece, while Senior Vice Presidents Margaret Le Beau, Linda Martin and Kristine Shaw will get $5.8 million apiece.

Green pages

Welsh, Carson, Anderson & Stowe and The Carlyle Group, the two buyout firms that acquired the Dex business from Qwest in 2002, have made a large profit in just three years.

Cash in: $1.62 billion

The two companies put in the money in 2002 toward the purchase of the directory businesses and used debt, owed by Dex, to finance the rest of the purchase price.

Cash out: $4.31 billion

From dividends when Dex was a private company    $1 billion

Management fee   $20 million

From July 2004 IPO cashing out of their preferred stock   $126 million

From sale of shares in the IPO   $606 million

From sale of stock in February 2005   $404 million

From cash dividends in 2005   $30 million

Cash and Donnelley stock from the sale of Dex   $2.12 billionSource: Kelsey Group

At a glance


Headquarters: Cary, N.C.

Founded: 1886 as the Chicago Directory Co.

Directories: Publishes phone books in 19 states, most under the Sprint Yellow Pages brand and some under the SBC Yellow Pages brand. Total distribution of about 28 million copies. Major markets include Las Vegas and Orlando, Fla.

Finances: Made $27.8 million on sales of $440.3 million in first six months of the year. DEX MEDIA

Headquarters: Arapahoe County

Founded: Dex as a Yellow Pages business dates to Cheyenne in 1881, when the printer ran out of white paper in his stock and published a directory for Wyoming Telephone and Telegraph Co. with yellow paper instead.

Directories: Publishes 269 books in 14 states for Qwest Communications. Total distribution of about 44.5 million copies. Major markets include Phoenix and Denver.

Finances: Made $34 million on sales of $825.2 million in first six months of the year.Source: Kelsey Group,1299,DRMN_4_4129984,00.html