The proposed deal would cut the company's debt to 1.5 billion pounds and give lenders control of the business and access to any surplus cash generated.

The agreement is subject to approval from lenders holding 75 percent of the debt, the company said. The deal already has the backing of lenders holding 32.8 percent of Hibu's debt.

Hibu built its debt pile through a series of ambitious acquisitions in the mid-2000s, including a 3.3 billion euro deal to buy a Spanish directories business in 2006.

The company has struggled with a relentless fall in sales as its digital business has not grown fast enough to offset the sharp decline in print revenue.

"It was a good company with a bad capital structure. Then it became a bad company with a very bad capital structure. Now, the capital structure has been partly repaired," Panmure Gordon analyst Alex DeGroote told Reuters.

Trading of the company's shares was suspended as they would have no value after the deal.

Hibu shares, which traded as high as 604.69 pence in 2007, have fallen 75 percent since the company approached lenders for debt waivers in September. They last traded at 0.17 pence on the London Stock Exchange on Wednesday.

Hibu Chairman Bob Wigley said in a letter to shareholders that the deal would safeguard the company's 12,000 employees. (http://r.reuters.com/ryn89t)

However, DeGroote said he expects the new board to rationalise the business and cut jobs.

"I think it will be carnage. They'll take lots of heads out. I think the business will be pared right back and the focus will be on generating as much cash as possible."

Thomson Reuters LPC reported last month that the company was discussing a plan with a senior steering committee of lenders, which included Soros Fund Management, Blackstone's credit fund GSO and Deutsche Bank, involving a debt-for-equity swap.

Hibu, which had delayed announcing its full-year results pending a decision on its debt, reported on Thursday an after-tax loss of 1.81 billion pounds. Sales fell 16 percent to 1.35 billion pounds.

(Reporting by Roshni Menon in Bangalore; Editing by Saumyadeb Chakrabarty)

By Roshni Menon