Sprint sells directory unit, revises guidance

Sprint over the weekend announced that it sold its directory business for $2.23 billion, making it the latest carrier to shore up its liquidity position through divestiture.

R.H. Donnelley, which partners with Sprint as a sales agent in certain directory markets, agreed to purchase the unit in an all-cash transaction that is expected to close in the first quarter of 2003.

After taxes, Sprint is expected to reap more than $2 billion in proceeds. That money will be used to improve Sprint’s financial flexibility, strengthen its liquidity and pay down some of the company’s $21 billion in debt. A spokesman for Qwest declined to give a more detailed picture of how the money would be spent.

The sale includes more than 260 white and yellow page books with a total annual circulation surpassing 18 million in 18 states. According to R.H. Donnelley, the unit will post 2002 revenues of about $540 million, with earnings before interest, taxes, depreciation and amortization (EBITDA) reaching $260 million.

As part of the deal, R.H. Donnelley also obtained exclusive rights to directory publishing in Sprint’s local markets.

Sprint is the latest carrier to sell its directory business. Already this year McLeodUSA sold its publishing arm for $600 million. And during the summer, Qwest Communications sold its directory unit for more than $7 billion.

In other Sprint news, the company today revised its guidance for the full year 2002. For the FON group, which is comprised of the company’s wireline operations, Sprint expects earnings per share (EPS) to be between $1.41 and $1.43, up slightly from the earlier target of $1.40.

PCS revenues are now expected to be approximately $12 billion for the year, down from previous guidance of about $12.6 billion. Full year EBITDA will be about $2.7 billion, down from the previous target of $2.9 billion, mostly due to a smaller customer base and higher bad debt associated with a significant increase in churn.

The capital expenditure budget at FON has been trimmed to $2.4 billion from $2.5 billion. Free cash flow for the year in now estimated to be about $1.2 billion, up from $1 billion. As a result, Sprint FON and PCS combined is expected to post free cash flow of $200 million for the year, compared to previous guidance of free cash flow break-even.