Buying Dying Phone Books

The Denver Post

April 29, 2008

CEO doesn't know Dex

By Al Lewis 

Denver Post Staff Columnist

Dex knows, but the phone directory's parent company, R.H. Donnelley, does not.

That's why it has hired Atlanta-based Proudfoot Consulting Group.

"I'm counting on all of you to cooperate fully with the Proudfoot consultants," R.H. Donnelley chief executive David Swanson said in an April 23 memo to his employees.

"They will be riding with marketing consultants, observing how advertising is processed, billed, and distributed, and reviewing other key operations to learn how we conduct our business," Swanson said. 

Processes and practices seem like the least of R.H. Donnelley's worries.

Stock of the North Carolina- based company has lost more than 90 percent of its value since it acquired Aurora-based Dex Media in 2006. It was the biggest part of a six-company buying spree that loaded R.H. Donnelley's balance sheets with more than $10 billion in debt.

Now, the phone-book publisher faces a credit crunch and a recession. So it must use more of its cash flow to service its debt rather than pay dividends.

This prospect has driven its stock from about $64 a share in January 2006 to $5.16 as of Monday's close.

"We still have plenty of money to pay our debt," said R.H. Donnelley spokesman Tyler Gronbach, "and we still have money for our growth initiatives."

But growth into what? R.H. Donnelley is one of several companies that pile phone books like bricks on doorsteps. Those who receive them often just curse their next trip to the recycling container.

Swanson argues that people haven't given up phone books altogether. He says the company is just having challenges selling yellow-page ads in a softening economy.

But where will Donnelley go when it is up? It may have sites like, but margins on Internet advertising are a fraction of what they are in print. And printed phone listings will eventually go the way of VHS videotapes - it's just a question of when.

Dex, which still employs about 900 people in Colorado, used to be part of Denver-based Qwest. In 2002, Qwest sold Dex for more than $7 billion to avoid bankruptcy in a telecom bust.

A group of private-equity buyers, led by the Carlyle Group in Washington, D.C., loaded Dex with debt, took it through an initial public stock offering and flipped it to R.H. Donnelley, making a couple billion dollars along the way.

Despite his lack of vision, Swanson received a $1.23 million performance bonus in 2007, up from $1.06 million in 2006. And his overall compensation rose to $9.5 million, up from $7.1 million in 2006.

In 2006, not long after the Dex acquisition, Swanson was forced to apologize for errors in company press releases that claimed he had a degree from St. Cloud University. 

The error dated to 1999 but was not corrected until the company received an anonymous letter challenging Swanson's academic credentials. The company and its board shrugged it off as just one of those things.

Maybe Swanson is the kind of CEO whom private-equity firms seek when they need to unload a dying business model and an ungodly pile of debt. But at least he's hired a consulting firm to make sure the employees are doing their jobs right.

Al Lewis: 303-954-1967, or