Wednesday, March 08, 2006
VNU: Waiting for the Fat Lady to Sing
VNU agrees to $9 bln private equity buyout
The private equity group of Kohlberg Kravis Roberts & Co., Blackstone Group, Carlyle Group, Hellman & Friedman, Thomas H. Lee Partners and AlpInvest Partners has made a formal bid of about $9 billion for VNU (28.75 euros a share). Including debt, the offer represents a 13.4x multiple of EBITDA.
But VNU's shareholders have proven themselves to be an ornery lot, and 95 percent of shares must be tendered for the deal to close.
Key grabs, from the Reuters article linked above:
VNU had contemplated selling off pieces of the company, but said it had had no such offers and that a break-up would have adverse tax effects, cost the company economies of scale and go against its customers' wishes.
The private equity group said it planned to keep VNU "substantially together as an integrated company," while Ruijter told a news conference in Amsterdam that the group agreed not to break up VNU for at least 18 months after closing the deal.
"There are indeed no given guarantees," Ruijter said.
My takes:
1) The offering price is going to come up before shares are tendered.
2) If the deal goes through as is, it's the beginning of the end anyway for VNU as the company is currently constituted. This thing will be financed by senior debt and a high-yield bond, probably a crushing load of same. One nice recession, and the sell off will begin.
3) I don't buy the "economies of scale" and "customer's wishes" arguments, and I doubt the P/E firms do either. VNU, like other giant media companies, has never fully leveraged its various properties to the benefit of its customers. And I'd guess that the only real economy of scale is at the super-overhead level. Does A.C. Nielsen really get an economy of scale by being housed within the same corporate umbrella as a group of magazines or tradeshows? (I don't know what the tax issues of a breakup might be, so can't comment on that, other than to say that when billions of dollars are being tossed around, some of that money can surely be used to hire smart tax people).
4) The presence of Bob Krakoff in the deal (via Blackstone Partners) is a good thing. Perhaps he'll be able to mitigate the effects of the presence of KKR, which has fumbled media acquisitions badly in the past (see Primedia). He'll also do a fine job running the b2b media properties globally. Hellman & Friedman also has some good experience (via Advanstar) that will come in handy.
5) The only way for the P/E firms to get an ROI out of this will be from a breakup. At this deal size, I seriously doubt we'll see a flip in five years for $15 billion--though a refloating of public shares is an option, but not one that I think anyone is betting on. Given that, I think VNU's management is looking for a quick solution that passes the responsibility for breaking the company up to others. A breakup of assets will yield a higher return, at least in theory...otherwise, the P/E firms wouldn't be bidding. And I think the shareholders will figure that out, and either demand far more cash now, or force the board to do its job, and represent the best interests of shareholders by selling the company in (albeit) large pieces.
This one ain't over yet. The fat lady isn't even clearing her throat.
Comments
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The private equity group of Kohlberg Kravis Roberts & Co., Blackstone Group, Carlyle Group, Hellman & Friedman, Thomas H. Lee Partners and AlpInvest Partners has made a formal bid of about $9 billion for VNU (28.75 euros a share). Including debt, the offer represents a 13.4x multiple of EBITDA.
But VNU's shareholders have proven themselves to be an ornery lot, and 95 percent of shares must be tendered for the deal to close.
Key grabs, from the Reuters article linked above:
VNU had contemplated selling off pieces of the company, but said it had had no such offers and that a break-up would have adverse tax effects, cost the company economies of scale and go against its customers' wishes.
The private equity group said it planned to keep VNU "substantially together as an integrated company," while Ruijter told a news conference in Amsterdam that the group agreed not to break up VNU for at least 18 months after closing the deal.
"There are indeed no given guarantees," Ruijter said.
My takes:
1) The offering price is going to come up before shares are tendered.
2) If the deal goes through as is, it's the beginning of the end anyway for VNU as the company is currently constituted. This thing will be financed by senior debt and a high-yield bond, probably a crushing load of same. One nice recession, and the sell off will begin.
3) I don't buy the "economies of scale" and "customer's wishes" arguments, and I doubt the P/E firms do either. VNU, like other giant media companies, has never fully leveraged its various properties to the benefit of its customers. And I'd guess that the only real economy of scale is at the super-overhead level. Does A.C. Nielsen really get an economy of scale by being housed within the same corporate umbrella as a group of magazines or tradeshows? (I don't know what the tax issues of a breakup might be, so can't comment on that, other than to say that when billions of dollars are being tossed around, some of that money can surely be used to hire smart tax people).
4) The presence of Bob Krakoff in the deal (via Blackstone Partners) is a good thing. Perhaps he'll be able to mitigate the effects of the presence of KKR, which has fumbled media acquisitions badly in the past (see Primedia). He'll also do a fine job running the b2b media properties globally. Hellman & Friedman also has some good experience (via Advanstar) that will come in handy.
5) The only way for the P/E firms to get an ROI out of this will be from a breakup. At this deal size, I seriously doubt we'll see a flip in five years for $15 billion--though a refloating of public shares is an option, but not one that I think anyone is betting on. Given that, I think VNU's management is looking for a quick solution that passes the responsibility for breaking the company up to others. A breakup of assets will yield a higher return, at least in theory...otherwise, the P/E firms wouldn't be bidding. And I think the shareholders will figure that out, and either demand far more cash now, or force the board to do its job, and represent the best interests of shareholders by selling the company in (albeit) large pieces.
This one ain't over yet. The fat lady isn't even clearing her throat.
