In April 2007, the Overseas Investment Office approved YPG Finance Limited, owned 57.5% in Canada, 21.5% in the USA, 8% in Europe, 3% in Japan, 0.5% in Australia, and 9.5% by “various overseas persons”, to acquire Yellow Pages Group Limited “and certain trade marks and domain names used by (but not currently owned by) Yellow Pages Group Limited and its subsidiary” for $2.165 billion from Telecom Directories Holdings Limited and Telecom IP Limited, owned 33.09% in the USA, 20.05% in Australia, 9.02% in the UK, 8.76% by “persons who may be ‘overseas persons’”, and 29.08% in Aotearoa.

Though not explained by the OIO, the consortium is explained by Telecom in its announcement of the sale: it is “a private equity consortium consisting of CCMP Capital and Teachers’ Private Capital, the private investment arm of the Ontario Teachers’ Pension Plan”. The sale price was $2.24 billion in total but was made up of “$2.165 billion cash settlement plus approximately NZ$75 million of [Yellow Pages Group] debtors retained by Telecom”.

Despite its name, the Yellow Pages Group is more than just the Yellow Pages: according to Telecom, “Yellow Pages Group is the publishers of the print directories Yellow Pages, White Pages, and Local Directories, as well as the online directories equivalent and the 018 service. Recently, Yellow Pages Group has also acquired New Zealand Tourism Online and the New Zealand Retirement Guide. Each year Yellow Pages Group is responsible for printing and distributing more than six million directories – 18 regional editions of Yellow Pages and White Pages, and 22 editions of Local Directories – across the nation”. It therefore has a virtual monopoly on telephone directories (Telecom Press Release, “Telecom Sells Yellow Pages Group for NZ$2.24 Billion”, 26/3/07, http://www.telecom.co.nz/binarys/final_version_release_2603.pdf).

Telecom’s Lack Of Imagination & Willingness To Innovate

Adding to the impression that the sale was further evidence of Telecom’s lack of imagination or willingness to innovate in the fast moving area of online directories and related information was its announcement following the sale that $1.1 billion of the $2.1 billion would be paid out to shareholders rather than invested in its groaning network which is desperate for new investment. Profits, arm-twisting the Government, and its ill-fated Australian investments came first. “Future investment in Telecom’s broadband and mobile networks is not fundamentally linked to the return from the YPG sale,” said Telecom Chairman Wayne Boyd. “Any further investment in broadband will be contingent on being able to obtain sufficient regulatory certainty and being able to earn a fair rate of return on that investment. Other relevant factors which have been taken into consideration include Telecom’s earnings outlook, and the acquisition of PowerTel in Australia” (Telecom Press Release, “Telecom proposes $1.1 billion capital return to shareholders”, 3/5/07, http://tinyurl.com/2jgj7b). According to the OIO:

“The investing funds, together with CCMP Asia and OTPP are referred to collectively as the Consortium. The Consortium believes that YPG represents an attractive opportunity to acquire a unique business with substantial growth potential. The Consortium has identified YPG as an acquisition where the careful use of leverage in the capital structure, supported by a clear strategy for improving the business, will combine to provide an attractive investment for the Consortium’s managed funds.

“The members of the Consortium have access to highly experienced directors and will ensure that the Applicant is able to provide high level strategic advice and access to capital resources which the Consortium believes will enable YPG to successfully implement management’s growth strategies”.