Hicks Muse, Apax to Buy Yellow Pages Unit

Hicks Muse Tate & Furst Inc. and Apax Partners & Co. agreed Sunday to buy British Telecommunications’ yellow pages unit for $3 billion as Britain’s second-largest phone company tries to lower its debt.

The two buyout firms will pay $2.8 billion in cash and close to $200 million in loan notes for Yell Group, British Telecom said.

The transaction would be the biggest leveraged buyout of a European company this year and the third-biggest ever, according to the research firm Initiative Europe.

British Telecom, the former British phone monopoly, already announced plans to raise $15 billion by selling assets and shares to reduce its $39 billion of debt.

Hicks Muse and Apax are buying Yell for about a third the price they offered last month, bankers said. They lowered their bid after a regulator forced Yell to cut its advertising rates in Britain.

“This is a fire-sale transaction,” said Mike Williams, an analyst at Deutsche Bank.

Hicks Muse and Apax aren’t assuming any debt in Yell.

Yell also owns the largest independent yellow pages publisher in the U.S., Yellow Book USA. Senior managers in the unit, led by Joe Walsh, are expected to receive more than $56 million from the sale to Hicks Muse and Apax, the Sunday Times of London reported.

Apax manages Europe’s largest private equity fund, worth $3.8 billion, and Dallas-based Hicks Muse will use its $1.5-billion dedicated European fund to help pay for the transaction.

About $2 billion of the purchase price would be paid for with debt--$700 million of which would be in junk bonds, bankers said.

The Yell transaction is the latest for British Telecom. The company this month agreed to sell its stake in Japan Telecom Co. and other wireless units to Vodafone Group for about $5 billion. It then reached an agreement to sell 20% of the Open interactive television service to British Sky Broadcasting Group for as much as $530 million.