Turning the pages
Marc Tellier, son of Canadian business legend Paul Tellier, was just 35 when he led Yellow Pages Group Co. (now part of Yellow Media Inc.) through a $1-billion income trust offering in 2003, then the largest deal of its kind. Eager investors were sold on the Bell Canada phone directory publisher's reputation as a stable, cash-producing business: everyone from local plumbers to law firms bought ads in the thick books, which have been landing on doorsteps with a thud since 1908. An ambitious young CEO and perhaps eager to follow in his father's footsteps, Tellier suggested to a reporter a few months after the IPO that running the old-media company was "almost too easy," hinting he may soon be in the market for a bigger challenge.
He didn't have to look very far. While Canadians continue to let their "fingers do the walking," these days their digits are increasingly finding their way to computer keyboards and mobile phones. And that's a big problem for Yellow Media, since 75 per cent of its directory revenue comes from selling ads on tissue-thin pieces of paper. It's now Tellier's job to figure out a way to drag the company, with a client base of 365,000 mostly small- and medium-sized businesses, into the digital age-a mission emphasized by last year's redesign of the Yellow Pages logo, which no longer shows a pair of fingers walking across an open book, but instead leaves them dangling in mid-air.
Which, coincidentally, is how shareholders probably feel. Yellow Media's stock has plummeted nearly 65 per cent to just over $2 since the beginning of the year (its trust units once traded in the $15 range). Tellier's transformation plan, meanwhile, is being called into question as directory publishers in other countries wobble on the brink of bankruptcy. "Yellow Pages was once the gatekeeper of information to people's homes," says Neeraj Monga, an analyst at Veritas Investment Research, who dropped coverage of the stock two years ago. "But the Internet completely killed that business model."
But Tellier, now 43, told Maclean's that the doom and gloom is overblown. Debt is being whittled down and cash is still flowing into the company's coffers, he says. As a former Bell executive who helped launch the company's broadband Internet service, Tellier is bullish that Yellow Media, with its giant database of local business information, can remain an important player in the online world. Now he just needs to convince everyone else he's right.
When Tellier took the reins of the directory business back in 2001, his sales team was able to tell customers that 72 per cent of Canadians used a print directory every month (the figure is now 50 per cent). That had allowed the company to continue growing its revenue from print directories for several years even as the Internet was becoming ubiquitous in Canadians' lives.
With few capital costs and a simple business model, Yellow Pages Group also generated a lot of cash. That's what attracted legendary New York buyout firm Kohlberg Kravis Roberts & Co., and the investment arm of the Ontario Teacher's Pension Plan. They bought control of Yellow Pages Group in 2002 in a $3-billion deal, leaving Bell with a 10 per cent stake and Tellier in charge. They spun it off the following year in one of the most widely anticipated income-trust offerings of the era. Ironically, the deal was touted by some investment bankers as a safe place for investors to park their money after being burned by the dot-com meltdown a few years earlier. "A lot of really smart people invested in these companies," says Karl Moore, a business professor at McGill University. "Did they hype it? Well, the nature of sales is to overstate things a bit. You have to take it with a grain of salt."
Read full article: Macleans, August 10, 2011