BREAKFAST WITH THE FOOL
Monday, August 16, 1999
"Sudden money is going from zero to two hundred dollars a week. The rest doesn't count."
-- Neil Simon
Nielsen Media Research Acquired
Brian Graney (TMF Panic)
TV ratings tracker Nielsen Media Research (NYSE: NMR) agreed to be acquired by Dutch marketing and publishing group VNU NV for $2.7 billion in cash and debt, or roughly $37.75 per share. The purchase price works out to a 15% premium to Nielsen's Friday's closing price of $32 13/16 per share, which also happened to be the company's 52-week high. VNU, which publishes well-known periodicals such as Billboard, The Hollywood Reporter, Adweek, and Architecture, said the deal will boost its earnings per share before goodwill amortization in 2000 and "significantly" over the next five years.
Nielsen's core TV ratings business, which accounts for about 90% of revenues, benefits from strong brand name recognition and decent, steady growth. With its People Meter boxes tracking the TV viewing habits of 5,000 randomly selected U.S. households, Nielsen provides the currency for TV media deals and has an indirect hand in what it estimates to be $46 billion in transactions each year.
Most programmers have long-term contracts with the company for audience information, providing a fairly predictable main revenue stream. Operating margins in the most recent quarter were a solid 24.1%, up from 23.5% a year ago, and the company had been forecasting revenues and EPS growth in the low to mid teens in coming years before the acquisition. That growth could get a boost if VNU gets serious about leveraging the Nielsen brand name for tracking Internet user data, a faster-growing market than TV ratings.
A latecomer to the Internet area, the company's Nielsen//NetRatings online measurement partnership is only in its tenth month of operations and lacks the brand awareness of rival Web traffic monitor Media Metrix (Nasdaq: MMXI) among 'Net users. With financial backing of VNU and the right strategy, however, Nielsen's 50 years of experience as the go-to firm for TV viewing numbers can be leveraged into this new business line rather easily. Such a move would ensure the firm's near-term growth prospects and pave the way for future data tracking business lines as the Web matures and cements its place as the multimedia information center of choice for consumers.
News to Go
Trash hauler Waste Management (NYSE: WMI) has canned President and COO Rodney Proto and has accepted the resignation of CEO and Chairman John Drury after a recent quarterly earnings shortfall and a series of operational missteps left the firm's stock price down 49% year-to-date. To refocus the business, the company plans to junk non-strategic and underperforming assets and shed as much as 10% of its North American solid waste assets.
Number three aluminum producer Reynolds Metals (NYSE: RLM) has rejected a $5.6 billion cash and stock buyout bid from top producer and rival Alcoa (NYSE: AA), calling the proposed purchase price "inadequate." The company added that it will "explore all alternatives to maximize shareholder value, including the sale of the company."
Cereal maker Kellogg Co. (NYSE: K) announced that it will lay off about half of the 1,100 workers employed at its hometown Battle Creek, Michigan plant as part of an ongoing effort by the company to cut costs and boost its growth rate. Kellogg expects the move to yield annual savings between $35 million and $45 million.
Home improvement retailer Lowe's Companies (NYSE: LOW) reported Q2 earnings of $0.60 per share, up from $0.48 per share a year ago and ahead of the First Call mean estimate of $0.58 per share. Same-store sales during the quarter were up 5.6% from a year ago, the company said.
Information technology and home health care staffing firm Olsten Corp. (NYSE: OLS) posted Q2 EPS of $0.17 (excluding charges), topping the First Call mean estimate by $0.03. The company added that it is currently in discussions with an unnamed third party regarding a "possible significant corporate transaction."
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