Dutch media company VNU, parent of Nielsen Media Research, last week accepted an $8.9 billion takeover offer from six private-equity firms, presumably ending months of speculation about whether the company would be sold or broken apart. VNU must now win approval from shareholders, and some are already protesting.
TV- and advertising-industry executives, who rely on Nielsen data to drive $60 billion worth of annual TV-ad spending, are anxiously awaiting the impact on their businesses.
Six investment firms banded together: AlpInvest Partners N.V.; The Blackstone Group L.P.; The Carlyle Group; Hellman & Friedman LLC; Kohlberg Kravis Roberts & Co. L.P.; and Thomas H. Lee Partners L.P.
Some investors immediately rejected the offer, including major shareholders Knight Vinke Asset Management (KVAM) and Fidelity Investments, which control about 17% of VNU. “KVAM believes 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 spinoff of VNU’s main constituent parts and give equal consideration to a wider range of alternatives,” KVAM said.
The break-up scenario KVAM is proposing would see VNU keep the Marketing Information division, which contains market research firm AC Nielsen, and sell off the Media Measurement & Information unit, home to Nielsen Media Research, and the Business Information arm, which includes trade publications The Hollywood Reporter, Editor & Publisher and Billboard.
VNU says it considered pruning assets or auctioning off some businesses, but VNU CFO Rob Ruijter told analysts it determined that the buyout offered shareholders “the highest, most secure value.” He noted that the company did not receive offers for its individual businesses.
For the deal to close, VNU must win approval from 95% of its shareholders at next month’s annual meeting and from regulators. The private-equity firms have agreed not to break up the company for 18 months following the close, which is targeted for the end of May.
Nielsen Media Research is one of the main VNU profit centers. According to a recent Morgan Stanley report, the Media Measurement & Information unit generated 939 billion euros in revenue in 2004 and accounted for about a quarter of VNU’s total revenue. In 2006, Morgan Stanley estimates, the Media Measurement unit’s revenue will grow to 1.02 billion euros. If the division were sold on its own, analysts estimate, it would fetch more than $3 billion. VNU purchased the company for $2.7 billion in 1999.
For TV-industry execs, the focus is squarely on the future of the Media Measurement & Information division. TV execs and media buyers—typically at odds—share common frustrations with Nielsen, saying it moves too slowly to measure new technologies and platforms and has not invested enough in its core TV-ratings system. “More investment in data can produce more consistent, stronger results,” says a top media buyer. “The limitations are far less technological than they are economic.”
The proposed takeover could lead to more dissatisfaction. If Nielsen’s prospective new parents follow a typical takeover model, where investment firms cut costs and try to sell it, the slash-and-burn tactics could be disastrous for the ratings service, several media executives believe. “[Whether] research is reliable and stable is all about the money,” says one high-ranking broadcast-network executive. “You could cut a field staff from 100 people to 50 and save money, but you’ll also affect the reliability of the sample and the data.”
If the new owners survey clients, they’ll hear several common demands. Clients want Nielsen to improve the TV-ratings sample and measure viewership during commercials and on new platforms, like cellphones and the Internet.
“We’d like them to have a forward-thinking view,” says Richard Fielding, VP/director of Starcom Worldwide’s Insights and Analytics group. “One complaint always leveled at Nielsen has been their archaic reaction times.”