On the face of it, this looks like a distress signal. Reed Elsevier is understood to be organising a consortium of banks to lend more than £750m to the successful buyer of its trade magazine arm Reed Business Information. RBI as a whole is expected to sell for up to £1.25bn.
Real world translation: Imagine that you are selling your house. This is the equivalent of getting a bank to write a mortgage for your buyer. As part of the deal, you agree to pay the buyer’s mortgage arrangement fee.
So what does this tell us? Juliette Garside of the Telegraph interprets it as a tactic designed to keep bidders focused on making one big transaction.
Reed Elsevier, it seems, has been facing ‘widespread pressure’to break up its sprawling portfolio of 100-plus publications.
The underlying assumption? That there are bidders out there which could bid for the lot, but won’t. So they need a bit of prodding.
The literature suggests that Reed Elsevier might be most interested in prodding trade (or ‘strategic”) buyers – in other words other media corporations. It’s likely that these trade buyers are the ones agitating fora staged break-up of the group setting up debt financing for buyers like this can also be interpreted as a fairly assertive way of laying out your expectations on price – particularly in a market where sources of finance are constrained.
The key question here is whether Reed Elsevier’s own balance sheet will still be implicated in the structure of the deal after it’s done.
This really would be a signal that the sale isn’t proceeding smoothly. But Reed Elsevier would have been forced to warn its shareholders if that were the case. And that hasn’t happened.
Bottom line: What we’re seeing is Reed Elsevier bending over backwards to make this sale happen on its terms.