Bahrain-based Investcorp's agreement to buy Thomson Media, publisher of American Banker and Bond Buyer, from Thomson Corp. for $350 million has created quite a buzz since it was announced early last month.
First, the deal, which is expected to close by year's end, has rekindled hope that the business media mergers and acquisitions market might heat up. Second, it has ignited the anger of many of the losing bidders, which have complained that Thomson Corp.'s auction was, in the words of one jilted suitor who spoke on condition of anonymity, "unfair."
"Everybody's irate because they spent a lot of money [preparing bids] and didn't think it was a fair process," said Reed Phillips, managing partner of media investment bank DeSilva & Phillips.
In addition to Investcorp, the bidders in the final round included a group led by former Advanstar chairman-CEO Robert Krakoff and backed by Citigroup Venture Capital; Apprise Media, led by former Primedia CEO Charles McCurdy and backed by Spectrum Equity Investors; Wasserstein & Co., headed by Bruce Wasserstein; and James Finkelstein, backed by CSFB Private Equity.
Several bidders have griped that Investcorp stealthily tilted the playing field to its advantage by agreeing to keep the current management team at Thomson Media, which is led by CEO Jim Malkin. Some speculate that if another bidder had won, some members of the current management team might have been out of a job.
To back their charges that the auction favored Investcorp, people familiar with the process said the winning $350 million bid was equaled and even surpassed by other bidders. Some bidders questioned whether Thomson ought to have considered another round of bids to generate the best price for its shareholders.
Thomson Corp., which was represented by Morgan Stanley, insisted the process was fair. What swayed the deal in Investcorp's favor is that the firm's contract was not "marked up," meaning that it contained few or no contingencies regarding financing or performance. "All the contingencies [attached to other bids] yanked the value right down," said a person familiar with the bidding. "These rumors are nonsense and simply sour grapes."
Malkin, still CEO of the yet-to-be-renamed Thomson Media, said he was taken aback by the vitriol in the wake of the deal directed at him, Thomson Corp. and Morgan Stanley, which declined to comment for this story. "I'm surprised at what I would call the odd behavior of whomever is involved in these rumors," he said. "The process that Thomson conducted was absolutely clean."
Malkin said he gave all players the same pre-bid access. "The business was sold to the offer that had the best price, the cleanest deal and the fastest completion date," he said, adding: "I probably shouldn't be surprised, but it's astonishing to me the incestuous and fratricidal environment that exists in the marketplace that would cause this crying over spilt milk."
One industry observer said the acceptance of an equal or even lower bid was not uncommon. "In every transaction, there's price and then there's terms," said Robert Crosland, managing director at AdMedia Partners. Some terms may be so onerous that a lower bid-with more acceptable contingencies-is accepted, he said.
Another industry observer said the reason for the public disappointment expressed by some of the losing bidders stemmed from their not winning such a plum property. "Things of this size don't come around very often," said the observer, who spoke on condition of anonymity.
Others say the frenzy around the deal may be a sign that the M&A market has returned full force. "I believe this is kind of a bellwether deal for the market," Phillips said. "The fact that there were that many aggressive bidders willing to pay $350 million is a strong sign we've reached a turning point in the M&A market." M