VNU: is 28.50 the end or a beginning?

Private equity firms are trying to buy VNU for 28.00-28.50 EUR/share. Will that be enough? VNU closed Friday at 28.25 and had a peak of 29.41 intraday on December 14.

Now of course valuation is a tricky thing.

First, look at the premium. At current levels there is really no premium. Compared to recent history though, there is. Taking the average share price since August 1 (VNU made an offer for IMS on July 11, resistance from large shareholders arose in August and VNU dropped its bid November 17), the premium is around 7.5%. If you look at the three months preceding December 14 (when VNU acknowledged to be talking to investors), the premium is c. 7%. If you want a 15% premium over those three months, you are asking for 30.50 a share.

Second, comparing multiples is no short way to rocket science either. Ten B2B stocks have an average EV/EBITDA multiple of 11.1 (thanks to Reuters and Moody's), VNU has c. 11.4 at the proposed bid level. There is no apples to apples in this business, so there is really no premium if you look at it this way.

Third, let's check out some price targets. There is a bear at 26 (Exane) and a bull at 31.50 (Rabo). In my model, using consensus forecasts, I arrive at 29. But I am probably most bullish and look at a 32 target.

A 30.50 bid sounds pretty good to me. It would probably have investors cheering. If the bidding consortium allow VNU's current management to moan and groan over the proposed bid and raise its offer to 30.50, it makes VNU look good, having extracted an extra few euros for its shareholders.