Breakingviews: Nielsen activist stand is tough to deliver

WindAcre Partnership may be tilting at windmills in its fight against the $10 billion buyout of Nielsen. The agreed purchase by affiliates of Elliott Investment Management and Brookfield Asset Management for $28 per share came after a lengthy process in which Nielsen rejected a lower bid. WindAcre thinks it still isn’t getting enough.

WindAcre boss Snehal Amin’s push is aggressive even by standards he set as co-founder of pioneer activist investment firm TCI Fund Management. Unsatisfied with the offer, WindAcre asked for additional equity, bumping its effective price to $40 per share, a whopping extra $1.1 billion, according to Bloomberg.

That demand was knocked back. Undeterred, WindAcre has increased its stake in Nielsen at deal-inflated prices all the way to 27%. That’s enough to block the deal, currently structured as a UK scheme of arrangement requiring 75% approval.

WindAcre’s stance has two main flaws. First, the attempt to extract a huge extra payout for WindAcre alone, not for all shareholders, undermines its claim that Nielsen is worth $40 per share. Second, Nielsen’s board has concluded otherwise, at least for now.

Elliott, itself a prominent activist, and Brookfield have workarounds, too. Nielsen’s New York listing allows its directors to request to delist its shares. If in a tender offer the buyers secured a stake of at least 50%, they could replace Nielsen’s board, delist, and leave WindAcre stranded holding private shares.

This sets up a game of chicken. If the deal fails and Nielsen’s shares tumble, WindAcre faces big paper losses. For Elliott and co, meanwhile, even if they bypass WindAcre it’s unhelpful to have a hostile minority shareholder.

So WindAcre may end up collecting an extra sweetener. But if too much goes solely to Amin’s firm, other shareholders may balk. And the buyers may not be willing to pay much more. Assuming Nielsen’s revenue growth holds steady, EBITDA margins improve slightly to 46% and Elliott and Brookfield exit in five years at the same 10 times enterprise value-to-EBITDA multiple they’re offering now, the internal rate of return on their $5.7 billion equity investment would fall just short of 20%, Breakingviews calculates.

If Nielsen’s new products enable it to dominate streaming video the way it has TV, the picture could be brighter. But that’s a risky bet, and for now the return looks pedestrian by private equity standards. If WindAcre extracts anything extra, it may not justify the effort.

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BREAKINGVIEWS