YP Holdings LLC, the digital advertising business of what was formerly called Yellowpages.com, plans to submit a first-round bid Monday to merge with Yahoo! Inc., people familiar with the matter said.
YP is working with Goldman Sachs Group Inc. to investigate a variety of strategic alternatives, which could include acquiring smaller firms or selling itself, said the people, who asked not to be identified because the negotiations are private.
The company, controlled by Cerberus Capital Management, is valued at $1 billion to $1.5 billion, one of the people said. Its size makes it a candidate for a Reverse Morris Trust with Yahoo: a tax-free transaction in which YP would merge with a spun-off subsidiary of Yahoo’s core business, the person said. Time Inc. also considered such a transaction with Yahoo, Bloomberg reported in February.
YP owns the digital assets of what was formerly called the Yellow Pages. The print directories business was separated last year and is now called Print Media Holdings LLC.
Cerberus bought a majority stake in Yellow Pages from AT&T Inc. in 2012, for $950 million. Cerberus holds 53 percent of YP, while AT&T owns the remaining 47 percent. AT&T decided against bidding for Yahoo, people with knowledge of the matter said earlier this month.
If YP proceeds to acquire Yahoo, AT&T could end up buying part of the Web company that way, one of the people familiar with the matter said.
YP takes in more than $1 billion in annual revenue and last year had adjusted annual earnings before interest, taxes, depreciation and amortization of $166 million, according to a document obtained by Bloomberg.
Yahoo management and shareholders could be swayed by YP’s offer if they feel a cash bid from a larger company, such as Verizon Communications Inc., doesn’t fully maximize potential value, one of the people said. A Reverse Morris Trust would give Yahoo shareholders a partial stake in the combined company, with the ability to capture future earnings growth.
GoDaddy Inc. and YP also have held preliminary high-level talks on a merger, the people said. A deadline for first-round bids for YP could be set for late May, one of the people set.
Meanwhile, first-round bids are due Monday for companies and private equity firms interested in buying Yahoo. Verizon, TPG and Bain are among those planning on bidding, Bloomberg reported April 8. YP is proceeding with its process of examining strategic alternatives independent of Yahoo’s decision.
Representatives for YP, Cerberus, Yahoo, AT&T, GoDaddy and Goldman Sachs declined to comment.
YP is one of the biggest U.S. digital advertising companies, with revenue almost double that of San Francisco-based Yelp Inc. YP’s 3,300-person sales team is the largest local advertising sales force in the U.S., according to the company document.
YP could use its large sales force to bolster Yahoo’s advertising revenue, which is based in national programmatic, or algorithm-based, buying. Yahoo, which has more than 1 billion monthly active users, could strengthen YP’s brand, which has become more obscure as the print edition of the Yellow Pages has lost relevance.