On the face of it, this looks like a distress signal.
The Daily Telegraph reports that Reed Elsevier is organizing 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+ publications.
By tying up so many major banks when loans are hard to come by, UBS will leave private-equity buyers with limited ability to raise money elsewhere on different terms.
Viewed this way, the company’s move seems relatively aggressive.
The underlying assumption? That there are bidders out there would 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 for a 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. That’s rather different from saying that a sale — in one form or another — won’t happen.
Footnote: We’ve reached that point in the narrative where the sale of RBI has started to resemble Roman Abramovich’s quest for a new manager at Stamford Bridge. We’re seeing lots of speculation, very little of it informed — and zero hard facts.
The sight of Reed Elsevier pushing for a single transaction strikes Rafat Ali of Paid Content as odd.
Back on 24 April, Ali suggested that the company had decided to sell off RBI’s US subsidiary separately from Europe. Ali called this a “reality check” for Reed Elsevier.
Now, it would seem, Reed Elsevier has gone back to denying “reality” — and insisting on One Big Sale.
Responding to Juliette Garside’s piece, Ali describes Reed Elsevier as presiding over a “rather haphazard sale process”. The loan offer, he reckons, is a sign that Reed Elsevier is “desperate”.
Ali has been continuously skeptical about the chance of a deal — as you’d expect of a blogger-turned-entrepreneur who believes that the old order of B2B publishing is not long for this world.
Back in February, he quoted a source describing RBI as follows:
“It is a poor business gone ex-growth with very poor margins of about 13 percent. And while it has some great brands a lot of what they do is structurally challenged and has seen a huge migration of recruitment advertising online. This business will struggle to go for anything north of 7-8 times Ebitda. They are a year too late selling it in my opinion.”
If you pin your colours to that particular mast, it really is hard to see how a sale can succeed. Somehow, though, I don’t think things are quite so bleak as all that. . .