The price of credit protection on Dutch media and entertainment group VNU yo-yoed last week after a consortium offered to buy the company, but then two key VNU stakeholders opposed the sale. Both Fidelity International and Knight Vinke Asset Management, who own nearly 12% of VNU shares, said they plan to reject the almost USD8 billion offer from Valcon Acquisition, a group including The Blackstone Group, Kohlberg Kravis Roberts, AlpInvest Partners and The Carlyle Group.
The board acceptance of the offer triggered concerns about how financing for the deal would impact the company's operational structure and sent players rushing to buy protection. As a result, five-year credit default swap spreads blew out to 260 basis points on Wednesday from the low 220s on Tuesday. This was exacerbated by Moody's Investors Service downgrading VNU senior unsecured long-term debt rating to Ba1 from Baa2 and putting it on watch for further downgrade.
News quickly followed however of the shareholder rejection. "People got a bit nervous and then sold their protection," said one trader in London. This caused five-year spreads to pull back into lows of 175 bps. On Friday, the price of protection had returned to around 200 bps with a bid/offer spread of five to 10 bps. All parties will discuss the takeover at VNU's annual meeting April 18 and traders said they expect protection buying and selling to calm down until then.
"Should the transaction not go through, a break-up of VNU or further leveraging of the existing company can not be ruled out," analysts at Moody's wrote in a report, adding, "It appears unlikely that VNU will continue to operate in its current configuration and with its current capital structure." The company is rated BBB minus by Standard & Poor's.
