LONDON (Reuters) – British media group Informa’s (INF.L) move to buy Springer Science and Business Media could face private equity competition as sources said EQT was lining up a loan of more than a billon pounds to help fund a rival bid.
Debt-laden Springer Science and Business Media, valued at around 2.6 billion euros ($3.9 billion) including debt, was put up for sale earlier this year by its private equity owners Candover (CDI.L) and Cinven [CINV.UL].
They now face a choice between a trade buyer offering a higher price with business synergies and a faster sale to private equity.
Barclays, Goldman Sachs and UniCredit are underwriting a loan of more than 1 billion pounds ($1.65 billion) for EQT’s bid, two senior bankers said on Tuesday. Informa is also talking to advisers about an underwritten loan of a similar size, one of the bankers said, which could tide it over ahead of a rights issue.
Analysts and sources familiar with the situation said they now expected Springer’s equity to be around 400 million euros, with debt of 2.16 billion euros. One banker said the company’s debt was 1.9 billion euros.
Candover and Cinven had initially given it a valuation of around 1 billion euros, but at the end of June Candover’s own valuation gave the group an equity value of 250 million pounds, or 276 million euros.
EQT has been close to the sale from the outset, along with Apax Partners, and other private equity suitors including TPG and a consortium of Carlyle and Providence also showed interest as various options to tackle the company’s outsize debt were discussed, including a stake sale.
“EQT is definitely still in the game,” a banker close to the deal said, and a development could come within 10 days.
Analysts welcomed Informa’s move for the complementary assets, but fears over the cost of the deal sent shares in Informa down 9.5 percent, valuing the company below 1.7 billion pounds ($2.81 billion).
“We can see why this deal could make sense,” Altium Securities analysts said in a note. “However, we would be wary of the group overstretching itself financially and suspect investors may be reluctant to provide further funding.”
Informa, which publishes Lloyds List, said it expected any takeover to generate significant cost savings.
Informa, which owns a range of academic and professional publications and runs conferences and courses, offered a fully underwritten rights issue in May to pay down debt.
It said in July it had reduced its net debt to 984.5 million pounds, giving it a ratio of net debt to earnings before interest, tax, depreciation and amortisation of 3.
“Whilst we acknowledge that the group would have to undertake a considerable rights issue, we are highly supportive of the acquisition and believe the enlarged group would be a high quality global leader in the sector,” Numis analysts said.
Analysts expected Informa to need to raise capital, with a Citi research note anticipating a capital increase of between 1 billion and 1.5 billion pounds, up to six times the amount the firm raised in May to cut debt.
Informa’s move on Springer is something of a role reversal, as Informa in 2006 rejected a 2.7 billion pound takeover bid by the German firm.
Springer’s owners had been looking to land 500 million euros ($745.4 million) for up to 49 percent of the business, but initial offers came in closer to 400 million euros, as suitors were worried about refinancing a heavy debt burden. Springer then said in October it was considering a full company sale.
Springer was formed in 2003 when Candover and Cinven merged BertelsmannSpringer with Kluwer Academic Publishing.
The two private equity firms then took advantage of hot debt markets to load the company with debt in 2004, 2006 and 2007 and pay themselves large dividends.
They more than tripled Springer’s borrowings to 3.08 billion euros at one point, leaving any potential buyer with a legacy of debt in desperate need of refinancing before loans start to mature in early 2010.
“Informa has been given access to due diligence materials to enable it to be in a position to make a formal proposal to shareholders,” Informa said in a statement on Tuesday. “There can be no certainty agreement will be reached.” ($1=.6708 Euro) ($1=.6045 Pound)