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John Paulson Caught In Bidding War Over Bankrupt Telephone Directory Maker
Billionaire investor John Paulson recently announced that he is willing to invest $200 million to purchase up to 45% of the post-reorg new common stock in bankrupt telephone directory maker Idearc. Even though Paulson previously owned a substantial portion of Idearc's prepetition debt which converts into roughly 13% of pro forma equity per the Plan of Reorg, his holdings would be capped at 45% (essentially a net outflow of $142 million for the 32% which would be acquired). So what was supposed to be a simple hunt in the back pocket for loose change for a transaction that leaves a few people puzzled as to what value the billionaire contrarian sees in a business model that is rapidly eaten away by Google at both the national, and increasingly more, the regional and city levels, just got a little more complicated. Yesterday Bennett Management Corp decided to outbid Paulson, by notifying the debtor that it was "willing to pay a significantly higher price" of $220 million for the same equity stake, and that also the estate would end up getting a much greater actual cash inflow as BMC only owns 1% of post-reorg equity cuirrently.
BMC is also arguing against the proposed Paulson plan on the grounds that the hedge fund has not been aggressive enough in marketing the Idearc stock before announcing its debtor-accepted bid.
The Debtors have failed to present any evidence that they have adequately marketed the New Common Stock. In fact, the Debtors cannot demonstrate that the proposed sale at the current price is in the best interest of the estate or that the New Common Stock is being purchased for the best value, particularly given the fact that the BMC Purchasing Funds have expressed an interest in purchasing the New Common Stock at a significantly higher price.
The Debtors have not articulated a logical business rationale for refusing to pursue a higher offer from a party that is poised to purchase the New Common Stock at a significantly higher price than that offered under the transaction currently proposed by the Debtors.
The question what the 1251 Ave of the America based hedge fund (it is convenient that Paulson has gone down the distressed road. It is doubly convenient that his floor is connected to restructuring powerhouse Rothschild merely by a staircase) sees in Idearc in the first place is a good one. Yet $200 million for Paulson is simply capital that has to be put to some use (the alternative: buying 100 HFT trading systems and making $100 trillion dollars in this no volume, high vol, predatory algo driven market, is almost like shooting fish in an excess liquidity barrel). Perhaps with a cleaned up balance sheet Idearc does in fact have some equity value, although like Blockbuster, Movie Gallery and Bank of America, this is merely another melting ice cube as quantized information become infinitely commoditized. It will be interesting to see what Mr. Paulson ends up doing with this particular investment, and whether, he will in fact even overbid Bennett (and how far any bidding war may go).
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Probably a false bid to get Paulson's bid upped.
Hey Pauly, if the dead tree deal goes south on you, call me -- I've got a typewriter repair business priced way under comps, and the owners are motivated to sell.
I was thinking the same thing...
So maybe you analyst guys can answer a novice's question:
Idearc's revenue is from ad sales in their crappy directories dumped on your doorstep whether you want it or not... Isn't all print and tv ad revenues down significantly this year?
So how does revenue growth look for this loser? Are the investors looking to strip assets or maybe take advantage of tax credits on Idearc's loses?
Outside of old people who watch the CBS evening news... who else uses a phone directory? I cuss and toss the thing in the recycle bin every time the ballast turns up on my doorstep.
economessed went with the typewriter... Investing in a company that made those stupid rabbit ears that sit on the tv was what I was thinking...
Cash flows, huge cash flows.
Oh, I did not think about Superpages.com...
I guess that is why novices should sit at the back of the conference room and remain quiet...
Phone books are the new bubble.
Between Buffett going into rails, and now Paulson looking into telecom, are we to believe that 2010 will be the new 1910?
There's surely more here than meets the eye. My initial thought is perhaps him expanding into international markets. I'm not up on the directory business outside the US but this may be a big area for growth outside the US.
I finding it interesting that Buffett and Paulson both would delve into industries that are very heavily regulated to earn steady cash flows. Given this administrations propensity for a hands-on approach, do they know something else that we don't?
barbell strategy: he has stable regulated businesses for deflation and gold for inflation.
THIS JUST IN!!!
2 Bank Failures Today:
It's still early...
I haven't used a directory in years, has anyone? In fact, I don't think they even deliver the free ones to my house anymore.
"There's surely more here than meets the eye. My initial thought is perhaps him expanding into international markets. I'm not up on the directory business outside the US but this may be a big area for growth outside the US."
yeah, coz here in Europe we live in caves and have just got electricity.
Are you smoking crack? Even Naples in Italy has super fast broadband (probably helps with fraud and drug dealing). We don't use directories any more than any asshole in Idaho does.
He wants Idearc for SuperPages.com. SuperPages is in the hot local ad market.
I am surprised Google isn't on the bid here.
Take a look at Marchex, InfoSpace or Local.com to see his competition.
Jim Bennett is a pretty smart guy.
Agree with that...he's thrived and survived in the distressed investing area for A LONG, LONG TIME.
Agree with that...he's thrived and survived in the distressed investing area for A LONG, LONG TIME.
My phone has a phone book built in, and so does everybody's under the age of 90. Who the hell would pay 5 dollars with somebody else's money for a phone book business?
Hey, everybody knows that the phone book is quite literally the original Ponzi-scheme. Shame Mr. Ponzi never figured out a means to comoditize and fractionally lease/lend his phone books.
P.S. captchas are still too easy. Switch to linear algebra or matrix theory at a minimum
This is worth sharing on my blog! Thanks folks!
Mike Stewart
www.DallasGoogleGuru.WordPress.com
Have you guys heard about the Idearc Executive that cheated advertisers? Put her husband's company in the book under a new heading she created to pay less. Smart move huh! Go figure! Crony Yellow Pages Executives need a lashing!