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Market bears force Yell to pull £2bn float

Susie Mesure
Tuesday 02 July 2002 00:00 BST
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The faltering new issues market was dealt yet another blow yesterday when Yell, the telephone directories business, pulled its planned £2bn flotation because of market volatility.

Yell, which was the second major UK company to withdraw its initial public offering in two days, said it would probably try to float again when market conditions improve. Its move raises questions about the flotation of Burberry, the luxury goods group, which is due to price its shares next week, and other slated IPOs.

Yell, which would have been the UK's biggest float for nearly a year, had hoped to raise around £750m. It said the delay to the IPO would not hold back its business plans, which centre on developing its UK business and expanding in the US.

The decision to pull its float, which saw Yell join Focus Wickes, the do-it-yourself retailer, and Prada, the Italian fashion house, on the growing list of casualties from the WorldCom fall-out, came two days before the company was due to price its shares. This was expected to value the Yellow Pages business, which was bought by venture capitalists from BT last year for £2.1bn, at the lower end of its £1.8bn to £2.3bn indicative price range.

Analysts said the lack of investor appetite was likely to close the IPO window that opened earlier this year with the flotation of groups such as Xstrata, the mining company, and William Hill, the betting shop operator, for the rest of the summer. However, GUS, Burberry's parent, yesterday insisted that its IPO plans "remained on track". C&C, the Irish drinks and snacks group, also said it hoped to price its shares next week as scheduled.

One senior fund manager said Yell and Focus Wickes failed to provide "enough of a hook for investors. Their growth characteristics weren't as secure as the market and investors were looking for".

Others raised concern over Yell's unproven track record. "It's almost as if [Yell's owners] were floating an online business in March 2000. [They were] flying in the face of what investors were looking for in terms of secure cash flow," said an investment director at a major pension fund.

Tim Rees, director of investment strategy at Clerical Medical Investment Group, said: "Most IPOs aren't 'must own' stocks. They are to be considered along with a host of existing companies."

While Yell promised growth prospects from acquiring a host of European competitors, from Spain's Paginas Amarillas or France's Les Pages Jaunes, investors cited worries over the company's muted growth prospects in the UK, where it has 87 per cent of the market. Last week's move by BT – which was forced to sell Yell at a knock-down price last year to reduce its debt – to acquire Scoot.com, the online directory service, also unnerved potential investors.

A spokesman for Yell said the group would press ahead with mopping up rival directories businesses in the US, where the market is forecast to grow to $5.4bn (£3.5bn) in 2006 from about $1.7bn last year, because it had access to an unused £100m bank facility. However, he admitted that if Yell remained in private hands next year then that could "put a constraint" on its ability to bid for rival businesses.

The spokesman said Yell was unlikely to repeat the example of Punch Taverns, the pubs group which pulled its float only to succeed a few days later at a cut issue price.

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