Reed Elsevier, the Ftse-100 media giant, is close to selling the publisher of New Scientist and Variety to US buyout group Bain Capital for $1bn (£680m), after its main rival pulled out.
The private equity group TPG dropped out of the auction – one of the few significant sales processes on world stock exchanges – after its investment committee last weekend decided the acquisition was too risky in the current economic climate. This left Bain as the last remaining bidder, though it will not have a clear run at Reed Business Information (RBI), which also publishes Estates Gazette and Flight International.
Sir Crispin Davis, the outgoing chief executive of Reed Elsevier, has invited Apollo, another private equity group, to consider submitting a fresh bid, even though it pulled out of the auction last month.
Reed Elsevier is understood to be unhappy with some of the conditions of Bain's bid, which includes a complicated earn-out structure – a move that would effectively tie key executives to RBI for a number of years. However, a source close to Apollo admitted that Bain was still the "de facto" preferred bidder, as it was currently involved in advanced due diligence on RBI.
Also, sources believe speculation that the sale could be pulled is incorrect, even though Bain's offer is far below the $1.8bn to $1.9bn Reed expected to garner when it announced the sale process in February. They added that the auction would already have been ditched if Reed executives had not accepted that they were not going to get the price they initially wanted. Instead, Reed is determined to complete a sale by around the turn of the year because of the falling advertising markets.
In addition, the lower price puts less pressure on a $1.26bn loan package arranged by six banks, including BNP Paribas and UBS, which a buyer would be able to access. This would be a relief to the banks as the debt markets continue to suffer.
Rival media groups are surprised that Bain is keen to plough on with the deal, given the likely continued deterioration of advertising revenues. However, an industry source pointed out that Reed had not taken the steps of its rivals to take costs out of the business, offering RBI's new owner quick savings through restructuring.
An industry insider said that a restructuring by the new owner of RBI would be "an immediate win".
In the UK, Bain owns Brake Brothers, the food distributor which the private equity group bought last year for £1.8bn, and Ideal Standard, a bathroom manufacturer.
Reed Elsevier closed at 487.5p on Friday, down 5.89 per cent on start of trading. A Reed Elsevier spokesman declined to comment.