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Strong interest in Telecom's Yellow Pages from media companies and private equity firms appears to given the asking price for the directory business a sharp boost.
It is understood several private equity and Australian media companies - including Fairfax Media, Seven Media and Telstra - are interested in making a bid for Yellow Pages, which Telecom put on the market late last year.
When the business was put on the market talk by many analysts was that it could attract $1 billion. However, speculation suggests it could attract more than $2 billion.
Tower equity manager Wayne Stechman said the strong contest between the large range of bidders appeared to have lifted the price.
"It clearly is the sort of asset that is going to attract a lot of interest and it is ideally suited to a private equity bid because it has good strong cash flow that can be geared up," he said.
"There seems to be a lot of trade interest from Fairfax and Telstra as well, to the extent that contestability increases the sale price."
Yellow Pages made earnings before interest, tax, depreciation and amortisation of $160 million in its last financial year.
A sale at $2 billion would be at 12.5 times earnings, well below the 15 times earnings reportedly paid for a half share in France Telecom's PagesJaunes last year.
Australian-based ABN Amro analyst Ian Martin said Telstra's interest in Yellow Pages made sense.
Telstra had a strong strategy of retaining its directory business Sensis and had changed its advertising model to better understand advertisers' needs.
"There are synergies for operating a common directory between Australia and New Zealand," he said. Yellow Pages would appeal to Fairfax because it was a more sustainable advertising business model than classified newspapers, he said.
Telecom's adviser, Goldman Sachs JBWere, told potential buyers last week that Yellow Pages revenue was expected to reach $280 million in the year to June.
Telecom chairman Wayne Boyd said yesterday the Yellow Pages sale process was under way but did not want to comment about potential bidders for the business.
Telecom's share price closed up 13c to an eight-month high of $5.02.
