Competition review points to setback for Yell

John Condron, the chief executive of Yell Group, the UK's largest directories business, hit back at the Competition Commission yesterday after it raised questions over the dominant position Yell has in the market.

Mr Condron said Yell "finds it difficult to recognise the market in which we compete from the one described in the Commission's 'Emerging Thinking'. Since the last review, competition has increased and diversified markedly."

The competition watchdog warned that Yell's dominant position in the UK directories market meant smaller businesses were finding it hard to compete.

John Davis, Yell's finance director, said that so far Yell had not had a chance to put its side to the Competition Commission. "At the moment they do not consider the internet to be part of our industry," he said, "but we operate in a competitive market. In 2000 there were 180 UK directories; there are now about 440. We are looking forward to an engaging debate but do not believe that there is any need for regulation in our industry."

The broker Panmure Gordon told clients that although it does not anticipate any conclusions from the Competition Commission until the summer, it considers the initial statement to be bad news for Yell. Leigh Webb, an analyst, said: "We struggle to see the shares getting north of the current price this side of the final Competition Commission's report... We believe this document reads bearishly for Yell Group."

The global directories industry has seen a glut of consolidation in the past three years. The private-equity industry has taken a keen interest in directories because of their high cash generation, ability to finance large amounts of debt, and the fact that for many owners directories are no longer a core business.

In May last year, 3i sold its European directories business, Yellow Brick Road, to the Australian investment bank Macquarie for $2.3bn (£1.3bn). Macquarie beat off competing bids from the rival private-equity houses BC Partners and The Blackstone Group in a hotly contested auction. That deal came one year after a consortium of private-equity firms bought Seat Pagine Gialle, an Italian directories business, in what was then Europe's largest leveraged buyout. Macquarie subsequently bought the directories subsidiary of TDC, the Danish national telecoms carrier, for Dkr4.85bn.

The US telecoms giant Verizon is also thought to be mulling the sale of its directories arm in an auction which could value the business at up to $17bn.