Shareholders Flex Muscles Scuttling VNU, IMS Health Merger

Shareholders at Dutch information and media company VNU have dealt management a black-eye, forcing the company to start talks with IMS Health about halting their proposed $7 billion merger. The deal now looks dead, management looks silly, and the shareholders look like they run the company. One wishes more shareholders would speak up when they didn’t like the way a company was going.

Templeton Global Advisors, Fidelity Investments and Knight Vinke Asset Management hold about 48% of VNU’s outstanding common stock. They told management a month ago that they didn’t like the deal. According to them, it would be too expensive, it would dilute their holdings far too much, and what they really wanted as a big division of VNU sold off with money returned to shareholders. They said they wouldn’t accept any kind of merger.

And so, the VNU management has to figure out how to get out of the deal it made. There is a clause stating that should either side pull out, it must pay the other $125 million to cover expenses racked up as well as for damage to its reputation. VNU maintains that it doesn’t have to pay because the deal is subject to shareholder approval, which it hasn’t secured and won’t.

If the two sides can’t come to an agreement, the companies could let their shareholders vote. However, that would likely result in a rejection, it will take until January to get the proxies sorted out, and then, management on both sides may have to resign. Top management hates doing that.

However, the entire mess could have been avoided if VNU’s directors and officers had listened to the shareholders. Giving money back to shareholders grates because it means they have a better use for the funds in mind than the company does – which bothers the ego. That said, management needs to remember that it works for the owners, not the other way around. It leads to a switch on the old Roman question of who will guard the guards? That is “who will boss the bosses?” At VNU, the owners do.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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