Moody's downgrades VNU
There's more financial pressure on the management of Nielsen parent VNU. Moody's Investors Service has downgraded its long-term debt and that of its Nielsen Media Ratings Inc. subsidiary - - and kept them under review for a possible further downgrade. Moody's says VNU's plans to return one billion euros to shareholders in the wake of its abandoned takeover of IMS Health (11/18/05 TVBR #227) will weaken the company's financial profile. Moody's also noted uncertainties about the company's future with the coming departure of CEO Rob van den Bergh. The report noted that activist shareholders who scuttled the IMS deal are likely to keep the pressure on VNU management. Unless VNU is sold (and the company has acknowledged getting takeover bids), Moody's says VNU is likely to focus on its core assets, particularly its media ratings and data businesses, while suggesting that divestitures are likely in its B-to-B businesses (trade publications and trade shows). The Moody's analysis is worth a read.
MOODY'S DOWNGRADES SR. UNSECURED DEBT RATINGS OF VNU TO Baa2; RATINGS REMAIN UNDER REVIEW FOR FURTHER DOWNGRADE
London, 20 December 2005 - - Moody's Investors Service today downgraded the senior unsecured long-term debt ratings of VNU nv and it's subsidiary Nielsen Media Ratings Inc. to Baa2 (from Baa1). The downgrade reflects Moody's expectation that VNU's weakened financial profile following the return of Euro 1 Billion to shareholders, the discontinuation of the scrip dividend and anticipating further restructuring in 2006 will no
longer be commensurate with the Baa1 rating level. The downgrade also reflects strategic uncertainties from the pending changes in Chief Executive Officer and Chairman of the supervisory board and from planned portfolio optimization steps. This is only mitigated to an extent by VNU's currently stated intention to manage the company to a high Baa rating. In addition, the company recently informed the market that it had received expressions of interest from various parties regarding a possible acquisition of the company. According to press speculation the group of interested parties includes financial buyers. Against this backdrop, all ratings are kept under review for possible further downgrade and Moody's warned that under a leveraged sale scenario a further multiple notch downgrade could occur. Should a change in ownership not occur, it is more likely than not that ratings will be affirmed at the Baa2 level, Moody's said. While it remains difficult to predict the speed with which VNU's current ownership issues might be resolved, the agency will comment again on VNU's ratings within the next two months or as warranted by news flow.
In the wake of VNU's failed bid for IMS Health, Moody's expects activist shareholders to make their presence felt with regard to major strategic decisions. Absent any sale of the company, Moody's expects VNU's near-term strategy to focus on its existing core assets, in particular its key research businesses, Marketing Information (MI) and Media Measurement and & Information (MMI). While both businesses are in a fundamentally sound state, MI still grapples with price pressures, particularly in Europe and with the overall health of the FMCG industry, its key customer. The unit also has to prove over the next couple of years that it can produce visible margin growth while investment in the business continues. In addition, management has indicated that it will seek further cost savings and has initiated a new corporate-wide initiative, Project Forward, which will amongst other things target IT finance, human resources and corporate overhead. Finally, Moody's expects VNU to take portfolio optimization steps, including smaller acquisitions and disposals, the latter most likely associated with VNU's B2B activities.
As of June 30, 2005 VNU showed Euro 876 million in cash (excluding Euro 643 million for cash-backed borrowings that were unwound subsequently). Moody's does not expect this number, which includes Euro 165 million at VNU's 60%-owned NetRatings subsidiary that are not readily accessible, to be materially different at the 2005 year-end. Therefore VNU will have to rely in the first instance on internal cash generation and, more importantly, on availabilities under its currently undrawn Euro 1 Billion stand-by facility to fund both shareholder distributions and maturing debt repayments of just under Euro 400 million during the year. Moody's would expect VNU to seek an appropriate term-out of any such drawings. In addition, Moody's notes that VNU's bank facility is subject to material adverse change language in its documentation. As previously noted by Moody's, VNU nv's rated debt instruments do not appear to provide change of control protection apart from the convertible bond due 2006.
The ratings for the following instruments are downgraded to Baa2 and
remain under review for possible downgrade :
VNU :
Euro 1,150 million Convertible Eurobonds due 2006
Euro 500 million Eurobonds due 2007
NGL 600 million Eurobonds due 2008
Euro 600 million Eurobonds due 2008
EMTN programme and issuance thereunder.
Nielsen Media Ratings Inc. :
USD 150 million Notes due 2009.
The P-2 short-term rating for VNU's EMTN programme is also put under review for possible downgrade.
VNU nv is an international information and media company based in Haarlem, The Netherlands.
Good Morning - Gain a personal edge on today's business day. Are you reading this from a forwarded email?
