CEO doesn't know Dex
By Al Lewis
Tuesday, April 29, 2008
Dex knows, but the phone directory's parent company, R.H.
Donnelley, does not.
That's why it has hired
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,"
Processes and practices seem like the least of R.H. Donnelley's
Stock of the North
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
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 Dexknows.com, 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,