KEY POINTS:
Telstra is out of the running to buy Telecom's Yellow Pages Group, leaving the way clear for private equity to take over the directories business.
Telstra confirmed yesterday it was no longer a bidder for Yellow Pages.
"Telstra is no longer interested. The price was much higher than we believe the asset was worth and the fact that Telstra stayed until the final round means we know the successful bidder has paid too much," said Telstra spokesman Rod Bruem.
"I think it would have always been a challenge for Telecom to have sold the business to its major competitor."
Bruem said Telstra - which has a calling and broadband business in New Zealand - was considering its next move in New Zealand.
"Telstra has other options that we're exploring, but we're a shareholder-focused company and we won't overpay for assets."
The Business Herald understands Telstra made what was described as a "competitive" bid for Yellow Pages, but Telecom decided against including its competitor in the final round of bidders.
That leaves just four or five bidders on the short list, which mostly comprises private equity firms. Directories businesses have the sort of stable cash flows that private equity buyers seek because it allows them to pay down debt.
Some observers had raised concerns that Telecom could harm its own position in New Zealand with a sale of the Yellow Pages business to Telstra.
While the actual directory information - the names and phone numbers - is expected to be widely available, there were concerns a competitor might have been able to benefit from the information Yellow Pages has about its customers. It could have been possible to use the customer information to sell telco services and more advertising to them.
Analysts have suggested Yellow Pages could fetch more than $2 billion.
Telecom is reported to have told potential buyers that Yellow Pages will earn revenue of $280 million in the present 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. Telecom shares closed up 3c at $4.91 yesterday.
