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Nielsen Hldg NV (NLSN), ONEX Corporation (OCX): What Does the Business Unit Sale Mean for the Big Merger?

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Nielsen Hldg NV (NYSE:NLSN)Market-watchers have thus far reacted positively to the news that Canadian private equity company ONEX Corporation (TSE:OCX) and media measurement giant Nielsen Hldg NV (NYSE:NLSN) had agreed to a $950 million deal that would see Onex purchase Nielsen’s exposition-and-convention business. Inked in early May of 2013, the deal could have far-reaching implications for the two companies’ shareholders as well as for Nielsen Hldg NV (NYSE:NLSN)’s pending merger with radio marketing firm Arbitron Inc. (NYSE:ARB).

Investors who have any interest in the proposed merger between Nielsen and Arbitron Inc. (NYSE:ARB) would do well to investigate the former company’s deal with Onex in detail. For starters, it might be helpful to compare the three companies that stand to benefit the most from this transaction.

Compare and Contrast: Onex, Nielsen and Arbitron

ONEX Corporation (TSE:OCX) is a major private equity firm that has a hand in a number of distinct industries. Although it focuses on manufacturing, technology, and healthcare the company also has a sizable presence in the retail and media industries. Unfortunately, it has hit something of a rough patch over the past few years. In 2012, ONEX Corporation (TSE:OCX) lost about $121 million on gross revenue of just under $27.5 billion. By comparison, Nielsen earned $284 million on revenue of nearly $5.7 billion. Arbitron reported a profit of about $57 million on gross revenue of $450 million. As such, Arbitron is clearly the most profitable firm of this group.

Onex also has a hefty debt load of more than $10.5 billion. This is somewhat mitigated by its healthy cash flow of over $2 billion and its cash reserves of nearly $3.5 billion. By contrast, Arbitron Inc. (NYSE:ARB) has no substantial long-term debts and an adequate cash flow figure of $110 million. On the other hand, Nielsen has just $233 million in cash to about $6.3 billion in cash. Of course, the ONEX Corporation (TSE:OCX) transaction will provide it with a much-needed capital boost.

How the Deal Will Happen

Even if this deal had no implications for the merger between Nielsen Hldg NV (NYSE:NLSN) and Arbitron, it would still be a newsworthy event. After all, Nielsen Expositions is a major player in the booming trade-show industry, and it maintains a special niche that caters to very large business-to-business meetings. Although the exposition business is a bit more staid than media ratings, it has provided Nielsen with a solid source of profit over the years. Nevertheless, this is obviously not a core business for the company, which according to recent filings, accounted for just 3% of the company’s 2012 revenue. Most market-watchers agree that Nielsen Hldg NV (NYSE:NLSN) should focus on strengthening its position as the premier provider of audience analysis services.

The deal itself is relatively straightforward. ONEX Corporation (TSE:OCX) has agreed to pay $950 million in cash for the expositions business. The company’s Onex Partners III subsidiary will use $350 million of its own reserves for the purchase and finance the bulk of the rest with leverage.

This purchase price provides Nielsen Hldg NV (NYSE:NLSN) with nearly 80% of the cash that it will need to finance the merger with Arbitron. As one observer astutely notes, this sets up a virtual three-way “trade” with Nielsen at the center. Although a firm closing date has not yet been given for the deal, it should go through within the next few months. Thus far no regulatory action or shareholder issues have arisen to impede it. It seems unlikely that this will occur at all.

Implications for Nielsen-Arbitron Merger

The deal between ONEX Corporation (TSE:OCX) and Nielsen accomplishes two important things by providing Nielsen Hldg NV (NYSE:NLSN) with the capital that it needs to acquire Arbitron without using any leverage and significantly increasing the likelihood that the deal between the two media-watching firms will pass regulatory muster. In light of skepticism from federal agencies that worried about the combined company’s establishment of a monopoly in the media-measurement business, this latter point is especially important.

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