But observer says current offer may be as good as it gets.
Key VNU shareholders are on the verge of scuttling another deal. Knight Vinke, who combined with Fidelity International, owns 17 percent of the stock has stated opposition to the $8.9 billion deal approved by the board to sell the company to a consortium of private equity firms. VNU N.V. could yet again be forced to consider breaking the company up and selling it piecemeal. Yesterday, one of the principals in the consortium was skeptical of the deal going through. "Given the history of this company with IMS, it’s not in the bag," he told FOLIO:.
Dragging It Out Makes It Worse
But another observer says that to scuttle the deal would devalue the company. "[The shareholders] are shooting themselves in the foot," says Tom Kemp, managing director at media banker Veronis Suhler Stevenson. "It’s going to affect the value of the business. It’s very difficult for executives and operating managers to run their business and make strategic long-term decisions if they don’t know if they’re going to be around in six months."
Even so, the $8.9 billion offered by the all-star line-up of private equity players is around 15-times EBITDA, says Kemp, which is a very full price. "It’s a large transaction so you have a limited number of buyers and I’m not sure they could do any better in a break-up situation."
A break-up would put too much pressure on the components to meet that 15X multiple. A spin-off of the b-to-b media unit, for example, would likely not sell for that multiple, putting leverage on the other assets to sell even higher to make up the difference. "From a strategic standpoint it makes sense to carve it out as a separate business and that may very well be part of the plan, but I think from a financial standpoint it’s more problematic," says Kemp, who adds, "The fact is, no one else has stepped up to the plate."
In another twist, sources familiar with the deal point out that Robert Krakoff, currently heading up private equity group Blantyre Partners, which is backed by consortium member Blackstone Group, is closely involved via Blackstone in negotiations. A successful outcome of the deal may also mark his return to an operating role – he is a former CEO and chairman of Advanstar.
"Out of all the potential owners he has more operating experience than anyone else in that consortium," says one source. This could spell trouble for current VNU Business Media president and CEO Michael Marchesano. Says the source: "If Krakoff were to take responsibility, I would doubt there would be a future role for [Marchesano]."
Prospects Looking Dim
Under the merger protocol, VNU would not have been broken up for 18 months from the close of the deal. While VNU has said it explored selling the company in pieces previously without luck (and that such a strategy would have cost millions of euros in lost tax benefits), shareholder Knight Vinke said it "believes that a higher value could be obtained by VNU’s shareholders if the boards were publicly to open up the sale process to include a sale or spin-off of VNU’s main constituent parts and to give equal consideration to a wider range of alternatives."
Considering that VNU needs 95 percent of shareholders to approve for the deal to move forward, and that Knight Vinke and Fidelity were the driving forces that scuttled VNU’s $7 billion planned takeover of IMS Health last year, the prospects of the deal look dim.
VNU also announced that organic revenue growth was up five percent, which fell short of previous forecasts, citing "difficult economic conditions in Europe affecting AC Nielsen and VNU trade titles, particularly IT."
However, VNU’s U.S.-based b-to-b properties showed signs of life. Advertising revenue was up slightly after four consecutive years of decline, while trade show revenue grew 10 percent, thanks to 10 new events launched in 2005. U.S. trade magazines saw slight growth after four years of decline. The b-to-b unit generated 618 million euros, or about $736 million in 2005, up 1 percent. EBITDA was 109 euros or about $129.9 million.