Yellow Media is in a tough spot. After bringing in $708-million from its sale of Trader Corp.'s automotive segment, the company has little in the way of tangible assets left.
Until Monday, one of those was LesPac Inc., an online classified site that operates in Quebec and competes with the likes of Kijiji. But now that too has been sold, swiftly bringing in $72.5-million from buyer Mediagrif Interactive Technologies Inc.
The move makes it seem as though Yellow Media is getting its act together to lower its debt load -- especially because the company is selling the asset at a gain. It bought LesPac in two tranches for $36-million; now it's selling the division for more than double that.
But Tim Casey at BMO Nesbitt Burns says it best. "While we think the implied divestiture multiple is impressive, the absolute level of debt reduction of $45-million is minimal compared to $2.6-billion in debt/prefs outstanding."
This debt load is so troublesome because even if Yellow Media's conversion to an online powerhouse is successful, that will take time. Until then, interest payments loom, and the banks were so worried that they forced Yellow Media to restructure its bank debt in late September.
Plus, the success of this online conversion isn't a sure thing. Even LesPac, which has revenue of $12.7-million in 2010, is seeing its revenue decline now that Kijiji has entered Quebec and adds pressure in the free listings market.
National Bank Financial analyst Adam Shine notes that Yellow Media is focusing on the business-to-consumer segment, so you can't try too many parallels. Yet he believes there are some.
"Though LesPac is a consumer-to-consumer platform, the pressure it began to feel this year speaks to the competitive dynamic Yellow Media is also poised to increasingly face with its core directories platform as it seeks to transition the latter from a mostly print-based story to one with a greater online presence."