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Nielsen Holdings N.V. (NYSE:NLSN)

May 06, 2013 8:30 am ET

Executives

Yaeni Kim

Brian J. West - Chief Financial Officer

Analysts

Matthew Chesler - Deutsche Bank AG, Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

Daniel Salmon - BMO Capital Markets U.S.

Brian W. Wieser - Pivotal Research Group LLC

Operator

Good morning, and welcome to the Nielsen Holdings N.V. Conference Call to discuss the divestiture of Expositions. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the call over to Yaeni Kim, Director of Investor Relations. Please go ahead.

Yaeni Kim

Thanks, Emily. Good morning, everyone. I'm pleased to have you join us for this conference call to discuss our announcement this morning regarding the divestiture of Nielsen Expositions. With me on today's call is Brian West, Chief Financial Officer.

Before we begin, I'll refer you to the Safe Harbor for forward-looking statements on Page 2 of the presentation. The slide presentation that we are using on this call is available under the Events section of our Investor Relations website at www.nielsen.com/investors.

With that, I'll turn over the call to our CFO, Brian West.

Brian J. West

Thanks, and good morning, everyone. We appreciate you jumping on the call. We thought given the Onex announcement regarding our Expositions business that it would be helpful to have a brief discussion with all of you to see how we're thinking about the transaction and put it into some context.

So if I go to the webcast slides that are out there, I'm on Page 3, divestiture of Expositions. So as everyone knows the Expos part of the company is a relatively small segment. It's just over $180 million of revenue last year and about $97 million of EBITDA. We've always referred to this business as a high-margin great strong cash flow business but always non-core, but that if the opportunity presented itself, we were going to be sellers. And we were able to get that done and signed, and now we're pleased that, that will now be with Onex.

The sale price is $950 million in cash, and I remind everyone, as we've said before, this is a tax-free transaction. So there'll be quite a bit of value creation from this deal.

In terms of what our impact is to our revenue and EBITDA for the year. So our revenue constant currency growth rate and our adjusted EBITDA margin basis point expansions, those growth numbers won't change given this is not a very big part of the company. There will be an EPS impact that we'll disclose and characterize as we close this later, but in terms of the growth rate, it's not really material. And there will be earnings adjustment. We'll talk about that as we get closer to close.

And in terms of what we'll do with the proceeds is we're happy to have this close line up nicely with our anticipated close of Arbitron, our pending acquisition. So those 2 line up nicely, we'll be able to do the Arbitron deal with a lot less debt. So we'll need to raise $950 million less debt for that transaction. So we're happy and pleased that we're able to be fortunate to line those 2 up. But more importantly, it also increases our flexibility to return cash to shareholders over time, which is different from where we were as we closed last year and as we talked about our dividend policy in February. So we think that's a good thing for investors. We expect this deal with Onex to close in the second quarter subject to various normal closing conditions.

On the Page 4, just in terms of how we see the net leverage impact and why we think this deal will allow us to move faster on our leveraging plan and then open up the ability to return capital to shareholders over time is on the bar chart, at the end of 2012 we ended at 3.7x net debt leverage. And we had always talked about, in 2013, having a target of de-leveraging by 0.3x to get us to a number of around 3.45x for end of 2013. We also had described that by doing Arbitron, under the original way we contemplated it was going to add about 0.4x on the net leverage, as you see on the orange, up on the chart. But then because we'll be able to need to raise a lot less debt because of these proceeds going towards that anticipated transaction, we get about 0.3x back. So it's really -- instead of being at almost 3.9x, net debt leverage will be at 3.5-ish. And we're happy with that, and again this opens up the flexibility over time to have future return to capital discussions with all of you.

With that, those were all my remarks I'd planned and I'd be happy to take anyone's questions. So operator, if you want to open up the lines, we'll move on.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Matt Chesler of Deutsche Bank.

Matthew Chesler - Deutsche Bank AG, Research Division

A few questions. So you said that the transaction was tax-free I presume because it's a Dutch entity. Could you talk about the net proceeds in general? And then secondly, the EPS impact. I guess you don't know until you get closer to close, but do you anticipate it will be positive or negative? And then any early thoughts on whether a return of capital can deviate from what you've been doing so far.

Brian J. West

Yes. So for now, on the net proceeds assumption, what I would have you -- what I suggest you guys use is $925 million because there'll be deal fees associated costs. So for now, use $925 million for your models, and then we'll update as we got closer to close. In terms of the EPS side, here's how I think about this one. So we'd always talked about the pending Arbitron acquisition was going to add $0.13 of EPS in the first 12 months. And then on this one, you're going to lose earnings from Expos, but you're going to have a pretty meaningful reduction in our interest cost for the Arbitron deal because let's say $925 million less debt. So I don't have exactly all the numbers. We feel really good about the fact that even though we're going to lose the EPS from Expos, we're going to have a very nice healthy benefit in the lower interest cost that's going to make that Arbitron transaction feel even better. So we'll sort all that out for you as we close both of those hopefully in the not-too-distant future. So we think the net benefit is going to be a good one for the company, and more importantly, the benefit in terms of what the portfolio will look like, because now we're talking about having 1 non-core business out of the portfolio, and we have another one coming in that looks just like our TV business in many ways. So we feel good about the underlying impact as well. Your third question was on?

Matthew Chesler - Deutsche Bank AG, Research Division

Just on return of capital just...

Brian J. West

Yes, return of capital. Thank you.

Matthew Chesler - Deutsche Bank AG, Research Division

[indiscernible] on the table essentially.

Brian J. West

Yes. So I would say that we're thrilled to be able to have this transaction bump up so closely to Arbitron. We think it's smart by just raising a lot less debt because you don't need it in the immediate term. But as I mentioned, our whole thinking around capital allocation capital return now has more flexibility, and I would say that once we get closed with these hopefully 2 transactions, we'll be more explicit about what we plan to do. But we've got lots of flexibility and lots of options around the table as you can imagine, and we'll get discussions internally. And we'll obviously get feedback from our investors, but we think it's a good position to be in, and we'll be more clear as those decisions get made, but more importantly, as we close these 2 transactions. Definitely this one in the second quarter and Arbitron as soon as the regulatory review comes to a close.

Operator

Our next question comes from Sara Gubins of Bank of America Merrill Lynch.

Sara Gubins - BofA Merrill Lynch, Research Division

So Brian, just to clarify for Arbitron the $0.13, that included the incremental costs of debt that you would have been taking on associated with closing the deal?

Brian J. West

Yes. So in that math, in that EPS we would have burdened that benefit for having to raise I guess close to $1.3 billion of debt. Now we have a lot less debt to raise. So we will see a very meaningful benefit in that EPS number attributed to this transaction.

Sara Gubins - BofA Merrill Lynch, Research Division

Okay, got it. So my guess is that, that $0.13 probably comes down somewhat when you net it out for selling Expos but certainly by not as much as if you simply sold Expos. Is that a fair quick look at it?

Brian J. West

I think when you run the math, you're going to see that net-net, when you bring Arbitron in and you take Expos out, it's pretty close because of that interest benefit that you're going to pick up on the Arbitron side.

Sara Gubins - BofA Merrill Lynch, Research Division

Okay. And then on Arbitron, I know you don't know what the timing will look like, but I think Dave had talked about kind of hoping to know more in about 2 to 4 months. Does that still sound about right?

Brian J. West

As with anything on the regulatory environment, we don't try to call our handicap a timing. We're moving through it as fast as we can and the regulators are going to decide on their timetable. So we'll stay tuned and keep everyone abreast as we know more.

Sara Gubins - BofA Merrill Lynch, Research Division

Okay, and then just last question. I believe that Expos was really run as a separate stand-alone entity, and so there aren't going to be any incremental costs that either remain or anything that was really allocated to it, but I just wanted to check about that.

Brian J. West

Not much, if anything, it'd be modest but it's not going to be a big deal because it was always run as a separate entity, and it's a very efficient carve out.

Operator

Our next question is from Dan Salmon of BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

Could you just maybe just describe the process a little bit, how you came to arrive at this agreement, if you've met with other potential bidders? And then secondly, just anything that would be special in the approval process for this deal, maybe tied to a Canadian fund or should it be fairly clear and straightforward?

Brian J. West

Nearest we can tell is it's going to be a very normal easy close in our view. There's nothing in the regulatory horizon that we would expect to prolong this by any nature. I mean, there will be a requirement to do certain HSR filings, but not any kind of expectation that it would get a review. And then it's just normal kind of closing stuff. So we don't expect this to be dragged on. And as I said, we expect it to finish in the quarter. In terms of process, we've always said for the better part of 2 years that the Expositions, while we loved it, was non-core, but if the opportunity presented itself, we would take a hard look at it, and we did. It was a competitive robust process that we're happy with the end result, and thrilled that a company like Onex will be able to take that business and invest in it for the future and grow it with a whole different set expectations versus what we would have to pretend with. So we feel good about it.

Operator

[Operator Instructions] And our next question is from Brian Wieser of Pivotal Research.

Brian W. Wieser - Pivotal Research Group LLC

Just following up quick on Matt's statement and question, can you clarify this is tax-free because of the Dutch entity? And then the second question, are there any other legacy Nielsen businesses that you could see now that are non-core or anything else that might be likely to be divested even if very small?

Brian J. West

So first question yes, this is tax-free given the way that it's structured and where it sits in the structure, which is a Dutch entity. So we're confident that the tax favorability will come through. And this was always a non-core asset, and we've always been pretty explicit about that. So for us, this is something that again we feel great about in Onex's ownership, and there's nothing that's going to be called out as non-core that I can see. This was really the last one.

Operator

Having no further questions, that concludes our question-and-answer session. I'd like to turn the conference back over to Mr. West for any closing remarks.

Brian J. West

It's great. So thanks for taking this call early for most of you. And if there are any questions Yaeni Kim and Amy Glynn, their numbers are out there and feel free to reach out to them, and we'll see you guys soon as we get out with various conferences over the next few weeks. Thanks, everyone.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Source: Nielsen Holdings' Management Hosts Divestiture of Nielsen Expositions Conference (Transcript)

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