NEW YORK, Oct 6 (Reuters) - The financing package offered by Reed Elsevier
in the sale of its trade publication unit might come in smaller than expected,
causing bidders to reexamine their offers, a source familiar with the matter
said on Monday.
Only a few bidders remain in the third-round auction of Reed Business
Information, the source said, as the Anglo-Dutch publisher tries to sell the
unit amid a credit crisis that started last year and has worsened over the past
few months.
Now, chaos in the credit markets has led one bank in the lending consortium
to back off tentatively, leaving a shortfall of up to about $200 million in the
staple financing package of $1.26 billion, the source added.
Staple financing, so called because the details are stapled to the back of a
deal sheet, is prearranged by a seller and offered to potential bidders. The
package used to be a target for bidders to beat, but it is becoming a more
common way to get a deal done in difficult debt markets.
Reed, which owns titles such as Variety, Farmers Weekly and New Scientist,
had put together a $1.26 billion staple financing package from a consortium of
banks, a source had previously told Reuters. It was also offering $330 million
from its own balance sheet in vendor financing for the sale of the unit.
But the package could now be smaller than originally promised, and bidders
are reexamining offers amid increasing uncertainty.
Reed declined to comment.
Reed's offer to provide a vendor loan from its own books also reflects a
growing trend aimed at reducing the amount of debt a bidder needs and to bring
down leverage ratios in asset sales.
The auction is being closely watched because it signals the return of
private-equity players after a year-long retreat.
The credit crunch, which hit last summer, made financing of large leveraged
buyouts difficult and severely limited the ability of buyout firms to invest
money.
Market conditions have worsened lately, with a crisis that has led to
shotgun sales of Bear Stearns and Merrill Lynch, the near collapse of American
International Group and the bankruptcies of Lehman Brothers and Washington
Mutual Inc.
BIDDERS
Several bidders had submitted first-round offers for Reed Business
Information earlier this month, valuing the unit at between 1 billion pounds and
1.25 billion pounds ($1.9 billion and $2.3 billion), but the number of
contenders has whittled since.
Private equity firms Bain Capital and TPG Capital
had opted out after bidding in the first round, the source said.
German publishing house Gruner + Jahr, part of media group Bertelsmann AG,
was involved in the second round of bidding, but has pulled out of the auction,
a separate source told Reuters.
Private equity firms Advent and Quadrangle were teaming up with publisher
McGraw Hill in the second round of bids, but it was unclear if they remained in
the third round. That team was only interested in RBI's aviation and health care
titles, a source had previously said.
Providence Equity Partners was also vying for the assets, separate sources
have told Reuters.
Both Providence and Quadrangle were not immediately available for comment.
Reed Chief Executive Sir Crispin Davis has said he would prefer to sell RBI
as a whole, but is prepared to split it up. Reed is selling the unit to reduce
its exposure to cyclical advertising markets.
Reed Business Information's revenue is derived roughly equally from the
United States, United Kingdom and the rest of Europe. Some bidders are not
interested in the entire unit, but only in certain titles or regional parts,
sources have said.
(Additional reporting by Georgina Prodhan in London and Megan Davies in New
York, editing by Richard Chang) Keywords: REED/SALE
tf.TFN-Europe_newsdesk@thomson.com
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