Despite what you may have read elsewhere, The Nielsen Company is still out to raise $2 billion in its long-pending IPO. It has, however, slightly modified the mix of securities to be offered.
In its latest revision filed with the SEC, Nielsen has added a new issue of “mandatory convertible subordinated bonds,” which will constitute about $300 million of the offering. Fees paid to the SEC would cover the sale of up to $1.725 billion of common stock and $327.5 million of the bonds, including the underlying stock when converted.
The bonds, to be sold in $50 increments, won’t remain bonds for very long. The mandatory conversion will take place in 2013, just two years after the sale of the bonds concurrently with the stock IPO. So, for two years the bonds will pay quarterly interest – at a rate to be set when the offering is set – and then convert into common stock under a formula spelled out in the prospectus. Nielsen, by the way, has an option to pay the interest in additional shares of stock, rather than cash. There’s also an option spelled out for holders to convert their bonds to stock before the mandatory conversion date.
The prospectus contains some cautionary notes for potential bond buyers:
“You will bear the risk of a decline in the market price of our common stock between the pricing date for the bonds and the mandatory conversion date. The number of shares of our common stock that you will receive upon mandatory conversion is not fixed, but instead will depend on the applicable market value, which is the average of the closing prices of our common stock over the 20 consecutive trading day period beginning on, and including, the 25th scheduled trading day immediately preceding the mandatory conversion date. The aggregate market value of the shares of our common stock that you would receive upon mandatory conversion may be less than the aggregate principal amount of your bonds. Specifically, if the applicable market value of our common stock is less than the initial price of $[TBD], the market value of the shares of our common stock that you would receive upon mandatory conversion of each bond will be less than the $50 principal amount, and an investment in the bonds would result in a loss. Accordingly, you will bear the risk of a decline in the market price of our common stock. Any such decline could be substantial.”
There’s also this warning:
“The opportunity for equity appreciation provided by your investment in the bonds is less than that provided by a direct investment in our common stock. The market value of each share of our common stock that you would receive upon mandatory conversion of each bond on the mandatory conversion date will only exceed the principal amount of $50 per bond if the applicable market value of our common stock exceeds the threshold appreciation price of $[TBD]. The threshold appreciation price represents an appreciation of approximately [TBD]% over the initial price. In this event, you would receive on the mandatory conversion date approximately [TBD]% (which percentage is equal to the initial price divided by the threshold appreciation price) of the value of our common stock that you would have received if you had made a direct investment in our common stock on the date of this prospectus. This means that the opportunity for equity appreciation provided by an investment in our bonds is less than that provided by a direct investment in shares of our common stock. In addition, if the market value of our common stock appreciates and the applicable market value of our common stock is equal to or greater than the initial price but less than or equal to the threshold appreciation price, the aggregate market value of the shares of our common stock that you would receive upon mandatory conversion will only be equal to the aggregate principal amount of the bonds, and you will realize no equity appreciation on our common stock.”
There is still no indication in the most recent update just how many shares will be sold in the IPO and what percentage of the company’s equity they will constitute, while the rest remains with the private equity backers and management team. Nor is there any anticipated pricing range. Of course, those blanks can be quickly filled in just before the company prices the IPO and begins trading on Nasdaq as “NLSN.”
RBR-TVBR observation: This is a big IPO in a market where IPOs have been rare as hen’s teeth for the past couple of years. It is taking quite a while to get a $2 billion offering done, but this is still one of the most likely IPOs to be priced as the marketplace improves. The two-year bond issue, with its mandatory conversion to stock, is an unusual hedge instrument – seeming to us a lot more like a preferred stock than a conventional bond, but without any voting rights until conversion. No doubt the underwriters identified some appetite in the market for a security of this type.