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Yell, the UK-listed yellow pages business, is the sole remaining bidder for TPI, the Spanish directories business worth €3.28bn ($3.97bn), which is being auctioned by its majority owner Telefónica.

The sale of the Spanish telecoms group’s 59.9 per cent stake is expected to trigger an offer to all shareholders in Madrid-listed TPI at the price offered to Telefónica.

Carlyle and Kohlberg Kravis Roberts, the US buy-out groups, dropped out of the auction last week, while interest from World Directories of the Netherlands, which is owned by Apax and Cinven, has cooled.

However, World Directories could attempt to re-enter the auction, according to one person close to the situation.

Telefónica is due to make an announcement on Friday on whether it plans to go ahead with the TPI sale.

Investment bankers and buy-out groups are monitoring the TPI situation closely because a sale could set a new earnings multiple benchmark in the directories sector, a favourite hunting ground for private equity groups.

Yell was formerly owned by Apax and Hicks Muse Tate & Furst’s European wing, now Lion Capital, before it was floated on the London market.

TPI’s shares are trading on a multiple of about 15 times 2005 ebitda of €219m.

“Yell doesn’t trade anywhere close to that,” said one person following the auction, highlighting the potential for the acquisition to dilute Yell’s earnings. “There are not a lot of synergies, so how do they create a lot of value for their own shareholders?”

UBS recently expressed surprise at Yell’s interest, given its previous focus on US acquisitions. It also said that TPI’s share price had been boosted by bid speculation, up roughly 28 per cent on an absolute basis in the year to date, second only to ProSieben in the European media sector.

Based on its current share price of €9.09, TPI’s market value is €3.28bn, making Telefónica’s stake worth €1.96bn.

Yellow Brick Road, a European telephone directories publisher owned by 3i and Veronis Suhler Stevenson, was last year sold for a higher-than-expected €1.8bn.

The stake is being auctioned by BNP Paribas. Telefónica is considering “all options”, a person close to the company said. These include a total sale of its stake or a partial sale.

World Directories is understood to have made an offer to Telefonica for TPI last year that valued the business at about €2.8bn.

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