Deal to purchase VNU is already in jeopardy

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The VNU saga took yet another twist late last week after two influential shareholders said they had rejected a sweetened $10.3 billion offer from a consortium of private equity players just a few hours after the media conglomerate announced it was accepting the deal.

VNU shareholders Fidelity International and Knight Vinke Asset Management together own about 17% of VNU shares, which means they have enough clout to block the deal. Both companies helped lead a shareholder revolt last year against VNU’s plan to acquire health care research company IMS for $7 billion and seem to be on a similar course with VNU’s potential suitors.

VNU said in a news release that the consortium plans to keep the company intact, but now investors have started to push it toward a breakup instead.

Knight Vinke said in an e-mailed statement that the offer “substantially” undervalues VNU. It reportedly prefers that VNU sell its media measurement and business information units separately and restructure the marketing information unit that includes ACNielsen.

The business information unit, which includes Billboard, The Hollywood Reporter and other trade magazines, represents about 10% of the company’s business.

In another signal that Knight Vinke is prepared to fight the deal, at least as it now stands, the Financial Times reported last week that the shareholder has recommended a formal search for a new CEO of VNU. (The current CEO, Rob van den Bergh, who basically received a vote of no-confidence following the IMS deal fell through, has said he will step down after a successor is found.) In January, Knight Vinke brought in Boston Consulting to study VNU’s businesses.

Knight Vinke’s various moves “suggest the deal is by no means done, but there’s room for negotiation,” said Reed Phillips, a partner in the media investment bank DeSilva & Phillips. “[Shareholders] just want a higher price.”

The deal, which includes $9 billion in cash and assumption of $2.3 billion in debt, still requires shareholder approval. The actions by Knight Vinke and Fidelity “are representative with what’s going on today with activist shareholders,” Phillips said. “They’re saying to the company, ‘No, you don’t have a blank check.’ ”

Bob Crosland, managing director of media investment bank AdMedia Partners, stressed that a new CEO is not all the company needs to fix what has turned into a “soap opera” in the eyes of M&A players. “There should be some significant turnover at the [VNU’s] board, either voluntarily or at the behest of the shareholders,” he said. “They need a new slate and people who shareholders can have confidence in.”

The private equity consortium is made of AlpInvest Partners, Blackstone Group, Carlyle Group, Hellman & Friedman, Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners. Permira Advisers pulled out last month.

VNU said in a separate statement last week that net income in 2005 rose to $305 million, from $293 million a year earlier. Revenue rose 5% to $4.1 billion.

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