NEW YORK Idearc -- the Verizon Yellow Pages company that was spun off as a separate entity in 2006 -- insists that its March 31 Chapter 11 bankruptcy filing is not a prelude to selling off assets, paying off creditors and closing its doors.
Instead, the company plans to convert about $6 billion in debt to equity for its lenders and reemerge with a healthy balance sheet and some new offerings that its CEO Scott Klein believes will transform the company. And analysts say competitors may copy a new guarantee program the company just put in place.
According to Neal Polachek, CEO, The Kelsey Group, a unit of BIA Advisory Services that tracks the Yellow Pages business, other big players in the business, also with big debt loads, may find themselves going through similar reorganizations. No other company has yet confirmed making such a move, but Polachek is keeping his eye on RH Donnelly, which reported an 8 percent drop in ad sales last year to $2.5 billion. Donnelly also confirmed last month that it had hired financial advisor Lazard to "assist in the evaluation of its capital structure, including various balance sheet restructuring alternatives." Donnelly reported $9.5 billion in long-term debt at the end of 2008. Donnelly executives couldn't be immediately reached for comment.
Idearc reported revenue of almost $3 billion in 2008, down 7 percent from 2007.
Klein, an executive with both business-to-business and consumer packaged-goods credentials who joined Idearc in June 2008, is bringing his CPG experience to bear as he tries to redefine how the Yellow Pages company does business. Idearc publishes Verizon print and online directories in the 26 states where the phone company offers service. Titles include Verizon Yellow Pages, SuperPages.com and SuperPages Direct.
Klein, a former marketing executive at both Procter & Gamble and Pepsi, has spent his first nine months as Idearc CEO working on internal operations while devising marketing plans that focus on the consumer -- unusual in a business that tends to concentrate almost solely on small business advertisers, according to analysts.
When he arrived at the company, Klein said Idearc was singularly focused on selling ads to clients. Now, he said, "we're helping them drive traffic through their businesses."
There are several ways Idearc is doing that, said Klein, including newly launched guarantee programs. And the Dallas-based company just unveiled its first consumer-focused TV ad campaign in years. The ads are from TM Advertising in Dallas, which won the estimated $35 million account in March after a review.
The ad campaign highlights a new guarantee to consumers that backs the work (up to $500) of small businesses that advertise in Idearc directories. Analysts said the guarantee is the first of its kind in the phone directory publishing business.
The company also just instituted a separate guarantee to clients, which promises a minimum number of leads generated by ads they purchase. The minimum varies by advertiser category and geographic region.
The Kelsey Group's Polachek calls the Idearc guarantees "innovative," and believes that competitors in the field will follow with similar offers. The data has always been there for the companies to come up with accurate estimates on how many leads their ads generate, said Polachek. But until now, they haven't been willing to back up their data with guarantees. "This will change the way advertisers perceive Yellow Pages" for the better, he said. For most of their clients, lead generation "is all that matters."
Polachek, who estimates that industry-wide revenue for the Yellow Pages business this year (both print and online) will total $12.5 billion, said the Idearc guarantee programs could be a first step toward "reestablishing a sense of trust for a medium that has kept raising rates irrespective of better or worse performance."
Another service that Klein and his team came up with to help clients, particularly in a recession when many businesses are strapped for cash, is a barter service called the SuperTrade Exchange that allows advertisers to trade goods and services among each other. "It's another way to differentiate ourselves and serve clients in a new way," said Klein.
Key to future success, however, is restructuring the company's heavy debt load, acknowledges Klein. When Verizon spun its directory business off in 2006, creating the publicly traded Idearc, the new company was saddled with $9.5 billion in debt. At that time, the debt load seemed manageable, Klein said. But when the recession hit, it became unsustainable.
Klein describes Idearc as a company with a bright future, albeit with what is now a "terminally ill balance sheet." The Chapter 11 filing, said Klein, should fix that. It was submitted after talks with its big lenders who have tentatively agreed on a plan to swap about $6.5 billion in debt for equity in the company.
Internally, Klein and his senior team have focused on streamlining operations. One example: the company is simplifying its advertising rate schedule. Until now, pricing options have been laid out in publications the size of small telephone books. That's changed in some markets so that clients can quickly review a two- or three-page brochure to size up rate schedule alternatives. Klein has also taken steps to streamline and computerize the transaction process so that sales reps can spend more time in the field talking to clients and less time in the office doing paperwork.
Polachek sees some evidence that those efforts are paying off. "I talked with a rep recently, who said she hadn't been more energized in the nine years she's been with the company," he said. "That speaks a lot to what Scott is trying to get done."