Kohlberg Kravis Roberts, Doughty Hanson and DB Capital Partners are all working on bids for Yell, British Telecommunications’s (BT) directory service.
But Apax Partners and Hicks, Muse, Tate & Furst’s £3bn bid is still out in front, bankers say.
The acquisition will be one of Europe’s biggest ever LBOs.
If the two private equity firms are successful, they will both own half of Yell and will pay for the acquisition using money from their funds and loans of up to £2bn.
Bankers believe that although the price is high, Yell’s earnings of about £200m will ensure the deal has good credit so raising the finance will not be difficult.
The £2bn loans will require support across the market and will include a high-yield bond and a US institutional tranche. The senior loans backing Apax and Hicks Muse have been underwritten by CIBC and Merrill Lynch.
The US tranche will be worth between £300m and £400m and could be the most richly priced European LBO debt so far. US investors’ demand for high returns could see the debt priced at up to 350 basis points (bps) above Libor.
BT is selling Yell in order to reduce its £30bn debt. It had planned a £3.1bn flotation for Yell, but the fall in telecoms shares forced a rethink. The sale will be announced in the next month after the Office of Fair Trading releases a report on Yell.