Qwest Communications International Inc. is selling its directories operation to a group led by Carlyle Group Inc. and Welsh, Carson, Anderson & Stowe for $7.05 billion, Dow Jones Newswires said, citing the Wall Street Journal.
Analysts have valued the Yellow Pages business of Qwest, the biggest local telephone company in 14 states, at as much as $10 billion.
The deal is expected to be the largest leveraged buyout since Kohlberg Kravis Roberts & Co.'s takeover of RJR Nabisco in 1989 for $25 billion.
Qwest spokesman Tyler Gronbach had no comment about the sale.
The Wall Street Journal, citing unidentified sources, said the deal would call for Qwest to sell the eastern half of its directories business first for $2.75 billion, which includes directories in Colorado, Iowa, Minnesota, Nebraska, New Mexico, South Dakota and North Dakota.
The newspaper said that Qwest would sell the western half for $4.3 billion in six to 12 months, pending regulatory approvals. The western portion includes operations in Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming.
The Journal, on its Web site, said Carlyle and Welsh Carson would each contribute $750 million in equity.
The sale is expected to be announced today.
Qwest has been under heavy pressure to sell QwestDex or other assets to unload some of its $26.6 billion in debt. Under its bank covenants, debt can be no more than 4.25 times its earnings before interest, taxes, depreciation and amortization. That ratio falls to 4 by the end of the year.
Earlier Monday, Qwest offered more details of its second-quarter results and said it expects to restate revenue while working with its new auditor, KPMG, to restate financial results from 2000 and part of 2001.
According to a filing with the Securities and Exchange Commission, the company was renegotiating its agreements with lenders. Qwest said it needs to amend the agreement or get a waiver from its banks before Sept. 30 or it would violate its financial covenants by the end of the third quarter.
Revenue for the second quarter is down $903 million from the same period last year, with revenue for the second quarter at $4.3 billion. The company attributed the decline to a weak economy, a drop in long-distance business, a decrease in optical capacity sales and the loss of 687,000 access lines.
Qwest has said it was reviewing optical capacity sales, equipment sales, publication schedules of its phone directories and services from other telecom companies that it believes may have been improperly recorded.
Some employees were disciplined for improperly recording equipment sales, but Qwest spokesman Chris Hardman would not say which employees or discuss consequences.
In 1999, Qwest started booking directory revenue when the directories were published, instead of over the life of the directory.
It said Arthur Andersen, the auditor at the time, signed off on that method, but KPMG advised Qwest to change the practice and account for the directories over time.
Shares of Qwest rose 31 cents to $2.24 on Monday on the New York Stock Exchange but fell 15 cents in extended trading.