MediMedia International, Ltd. - SSRN papers

6 downloads 143 Views 473KB Size Report
Now, in February 1991, the leveraged buyout (LBO) department of Kleinwort ... The target of the buyout bid, MediMedia International, Ltd., had a corporate office ...
SSRN Inspection

UVA-F-1032 MediMedia International, Ltd.

Username: TO ACCESS THIS DOCUMENT This is a protected document. The first two pages are available for everyone to see, but only faculty members who have verified faculty status with Darden Business Publishing are able to view this entire inspection copy.

Submit

VERIFIED FACULTY If you have verified faculty status with Darden Business Publishing, simply enter the same username that you use on the Darden Business Publishing Web site, and then click “Submit.” Please note that this is an inspection copy and is not for classroom use.

Faculty Register

UNVERIFIED FACULTY If you are teaching faculty and do not yet have verified faculty access with Darden Business Publishing, please click on the “Faculty Register” link and submit your information requesting verified faculty access.

Buy Case Now

OTHER USERS If you would like to read the full document, click on “Buy Case Now” to be redirected to the Darden Business Publishing Web site where you can purchase this and other Darden cases.

If you have any questions or need technical help, please contact Darden Business Publishing at 1-800-246-3367 or email [email protected]

Document Id 0000-1402-5935-000059AE

The protectedpdf technology is © Copyright 2006 Vitrium Systems Inc. All Rights Reserved. Patents Pending.

UVA-F-1032 Version 2.1

MEDIMEDIA INTERNATIONAL, LTD.

We had a clear vision that we could do much better on our own than as part of a bureaucracy. The demotivating factors of a big operation paralyze activity. We saw opportunities for revenue growth, cost savings, and asset management-all things that required people to take extra initiative at the local level. Across 25 countries this is quite a challenge: we wanted to be able to act locally under a common global understanding. Accordingly, we recreated the sense of partnership, the feeling that “it is our company” by inviting all the key managers in as equity investors. Raising the equity completely internally was not the hard part; indeed, the equity offering was oversubscribed by $2 million. --Dr. Martin Steinmeyer, chairman and chief executive officer of MediMedia As Martin Steinmeyer later recounted, the major challenges in the buyout had to do with negotiating the transaction and arranging the debt financing. Buyout negotiations had been ongoing since February 1990. Now, in February 1991, the leveraged buyout (LBO) department of Kleinwort Benson, Ltd. (KB), in London, in collaboration with Berliner Handels und Frankfurter Bank (BHF) in Frankfurt, was circulating a confidential memorandum soliciting senior-debt financing for a management buyout. The total funds required, $70.13 million, would be raised in part with debt denominated in European currency units (ECUs), the first time a buyout would be so financed. Was this structure appropriate? Could the debt financing be arranged? Was the purchase price sensible? What were the risks and potential returns to the various players in the deal: the senior creditors, Dun & Bradstreet (the seller and source of a vendor note), KB and BHF (mezzanine investors and financial advisors to management), and management (who were to provide the entire source of equity capital)?

This case was prepared by Robert F. Bruner and draws on field interviews and company documents. The cooperation of MediMedia International, Ltd., and Kleinwort Benson is gratefully acknowledged. This case was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 1992 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 6/98. ◊

-2-

UVA-F-1032

The Company The target of the buyout bid, MediMedia International, Ltd., had a corporate office in London and published medical journals and distributed promotional supplies primarily for prescribing doctors. MediMedia’s business included 30 largely autonomous operations in 25 countries, producing more than 70 products. Table 1 presents a breakdown of revenues by global region and reveals that over two thirds of MediMedia’s business was in Europe. Most of the firm’s products afforded pharmaceutical companies the opportunity to promote their prescription drugs to prescribers. MediMedia occupied a leading position in almost all of the local markets in which it operated. No other pharmaceutical promotional companies operated on as wide a scale as MediMedia. Almost all of the company’s products were exclusive to a specific geographical market; even where products were produced in one country and sold in another, they were tailored to local conditions and regulations. MediMedia had four principal medical product groups: medical journals, drug directories, office media (such as prescription pads and other medical stationery), and custom media (such as single-sponsored publications, educational videos, and training services). Directories and office media represented the most stable products in terms of both revenue and margins, whereas several journal markets had recently experienced not only reduced growth in display advertising expenditures but also structural changes favoring certain types of journals over others. Competition, modest in office media and directories, was quite intense in journals. The principal source of revenue from journals was the sale of display advertising to pharmaceutical companies. On the other hand, directories, office media, and custom media generated a substantial portion of their income from line fees, sponsorship and sale of products, and subscriptions from doctors, pharmacists, and veterinarians. Pharmaceutical companies used directories and office media to advertise and promote brand awareness of essential products in daily use. Journals and custom media tended to benefit from new-product launches. MediMedia maintained its own editorial staff, many of whom had medical or pharmaceutical training. The staff was responsible for writing or commissioning journal articles and maintaining the data bases for the various directories. On some products, the production process extended to photocomposition or even typesetting, but MediMedia was not a printing company. Virtually all physical production and distribution were performed by external suppliers or contractors.

-3-

UVA-F-1032

Table 1 MediMedia International Revenue by Region, 1990 (in US$ millions) Europe ............................................................................ $ 77.5 U.S.A ................................................................................ 17.5 Asia/Oceania ..................................................................... 11.8 Other ................................................................................... 5.0 Interco ...............................................................................(0.9) Total .............................................................................. $110.9

Given the importance of government regulation in the drug industry (especially on promotional activities), MediMedia’s national markets tended to behave independently. Few global trends existed, other than the expectation that the world pharmaceutical industry would continue to grow and to spend a fairly constant proportion of sales on marketing and promotional activities. However, MediMedia management identified five trends that warranted careful attention: •

Pharmaceutical advertisers were fine-tuning the targeting of advertising promotion to maximize the value of advertising spending. This strategy would tend to favor customized media, special editions of drug directories, and prescription pads.



Pharmaceutical companies were concentrating advertising expenditures in the early stage of a product’s life cycle. This focus would favor targeted and customized or educational media.



European Community (EC) members as well as countries in other regions were considering proposals to extend patent lives for ethical drugs.



Some markets were tending to favor high-frequency journals, often in tabloid format.



The globalization of product sales was an ongoing trend.

Advertising-based journals were clearly less favored by the above factors, and the journal market in some countries already had been adversely affected. Where expenditures on journals had been reduced, however, the resulting detriment tended to be to the marginal players, rather than across the board. MediMedia management had responded to these threats with higher publication frequency and increased circulation, coupled with some switches to tabloid formats.

Historical Performance The businesses that were to form the MediMedia International group hitherto had been structured, for management purposes, as a distinct subgroup of companies within Dun & Bradstreet. Accordingly, historical financial information existed on a pro forma, stand-alone basis only down to the operating-profit level, below which the business accounts were distorted by such items as goodwill amortization. Operating performance for the four years ended 1990 is summarized in Exhibit 1.

-4-

UVA-F-1032

During the fiscal year ended November 30, 1990, the group’s total revenue amounted to $111.0 million and its operating profit to $8.9 million. During the period 1987-90, the group’s revenue grew at a compound annual rate of 7.8 percent and gross profit at 5.2 percent. Revenue from drug directories, journals, and office media together accounted for 83.4 percent of total revenue and had grown each year from 1987 to 1990. Sales in Europe accounted for 73 percent of the group’s revenue, with France being the largest single contributor (37 percent of revenue and 30 percent of operating profit). No single product in any country accounted for a material portion of the group’s total revenue or gross profit. Printing and production, which accounted for half of the group’s direct costs, were largely variable in nature and consisted principally of paper and third-party printing. The other half, while not completely variable, could be controlled by skillful management of the editing and production processes. Editorial costs accounted for about 17 percent of direct costs and were largely fixed, although some free-lancers were used. Sales costs had a significant variable element, because a proportion of the sales staff’s remuneration was in the form of commissions and bonuses. Distribution costs were substantially variable, because the group had no in-house distribution capabilities. The slight decline of gross-margin percentages over the past three years generally was due to product reformatting and enhancement efforts in the journal segment. These efforts reflected the highly competitive nature of the journal sector, the significant costs incurred by the group to reposition and relaunch several major titles in response to market trends, and internal restructuring. Gross margins on office media were constant throughout the period. The group’s principal tangible assets were two French freehold properties in central Paris with a net book value of US$3.5 million. Management estimated the current market value of the properties to be US$10.8 million; the buildings were expected to be the only tangible security available to lenders. Intangibles consisted of deferred software costs and, following the acquisition, goodwill in the form of intellectual-property rights. Trade debt consisted of high-quality receivables from international pharmaceutical companies. Work-in-progress inventory was generally small. Current liabilities consisted mainly of amounts due suppliers and deferred income liabilities with respect to subscription amounts received in advance of delivery.

Origins of the Buyout Proposal MediMedia was to be carved out of the IMS International unit of Dun & Bradstreet (D&B), which had acquired IMS International in May 1988. At the time, IMS consisted of two businesses, market research and communications. D&B, interested in only the market research segment of IMS, would have quickly sold the communications business; but because the acquisition had been completed by means of a tax-free exchange of stock and had been accounted for as a “pooling of interests,” D&B was prohibited for two years from making any significant disposals from IMS under United States Securities and Exchange Commission regulations. Martin Steinmeyer commented:

-5-

UVA-F-1032

We expressed a desire to buy these businesses at the time when D&B bought IMS. D&B demurred because of the two-year waiting period. Toward the end of the period, D&B hired S.G. Warburg & Company to advise them on the sale of the medical publishing businesses. Five other bidders emerged—three others willing to pay much more than we. Among the potentially interested buyers was Elsevier (in Holland), who were themselves publishers of specialized journals and magazines. D&B called our offer ridiculous and told us to give up hope of buying the business. But we insisted that our offer remain on the table. Ultimately, the other bidders withdrew. Maybe they did not want to bid against the people on whom they would have to rely to make the acquisition succeed. To raise the debt financing, management approached BHF (which had known Dr. Steinmeyer for many years) and KB to co-manage the deal. Exhibit 2 summarizes the principal hurdles faced by KB and BHF in structuring the financing for the acquisition. Table 2 Sources and Uses of Funds (ECU securities translated at ECU 1 = US$1.388) Sources Existing liabilities Senior debt Mezzanine debt Vendor note Equity Total sources

US$ Millions 1.13 32.00 15.00 11.00 11.00 70.13

Uses Purchase price Decr. net working capital Interest on porch. price Cost and expenses Total uses

65.80 (4.47) 1.30 7.50 70.13

The sources and uses of funds are given in Table 2. Exhibits 3, 4, and 5 give the detailed terms for the senior debt, mezzanine debt, and vendor note, respectively. Almost half of the debt financing, or $29 million, would be denominated in ECU.1 Following the freeing up of capital movements within the European Community, many observers believed the ECU would play a larger role in financial services. Indeed, by February 1991, a robust secondary market in ECU1

The European currency unit (ECU) was created in 1979 as part of the founding of the European Monetary System. In value the ECU equaled a “basket” of 12 European national currencies, weighted as follows: Belgian franc, 7.6 percent; Luxembourg franc, 0.3 percent; Danish kroner, 2.45 percent; German mark, 30.1 percent; Spanish peseta, 5.3 percent; French franc, 19.0 percent; Irish pound, 1.1 percent; Italian lira, 10.15 percent; Dutch florin, 9.4 percent; U.K. pound, 13 percent; Greek drachma, 0.8 percent; and Portuguese escudo, 0.8 percent. The ECU could be valued in US$ terms by translating each constituent currency into dollars at the prevailing exchange rate, multiplying by the weights, and summing. The easier approach would be to consult the published exchange rates given in financial newspapers. Although not used as legal tender, ECUs were recognized as foreign currency in all EC countries and were used in bond issues, bank deposits, and checks. In 1988, ECU-denominated bond issues accounted for 5.5 percent of all international bond issues and ranked sixth among all global currencies.

-6-

UVA-F-1032

denominated corporate bonds had formed. Until this time, however, no leveraged buyout had been funded in whole or part with the ECU. The development of the buyout proposal for MediMedia occurred in a declining market for buyouts. The peak in buyouts had occurred in 1989 (see Exhibit 6); since then, the volume and average size of buyouts had dropped dramatically, as had the degree of financial leverage, or gearing, in such deals. To a large extent, this trend was coincident with a softening in capital-market conditions over the 1988-91 period. The European leveraged buyout market was dominated by U.K. deals in terms of both transaction volume and value. Management MediMedia was expected to employ 537 persons at closing. Of these, 52 managers proposed to contribute the $11 million in equity necessary to consummate the buyout. Several managers were keen to participate in the auction themselves, because they had significant net worth from the profits they realized when they sold their publications to the group. After closing, 11 million shares would be outstanding; on a fully diluted basis, the total would rise to 12.94 million shares. The board was to consist of four managers, plus two nonexecutive directors. Dr. Steinmeyer (German, age 55) would be the president and chairman of the board of MediMedia. He was president of IMS International’s Communications Division and had personally founded some of the business units subsequently acquired by IMS International and then by D&B. Dr. Steinmeyer, who would be based in Germany, also would be responsible for group operations in Germany, Austria, Switzerland, and the United States. Mr. Gerard Lashermes (French, age 47), to be based in Brussels, would be the chief operating officer and the director responsible for group operations in France, Belgium, Italy, Spain, and Portugal. He had joined the staff of Les Ordonnances Médicales de France (OMF) in 1968 and become its managing director and co-owner in 1972. OMF was acquired by the MediMedia group in 1976. Mr. David Bromilow (British, age 48) would be manager of MediMedia’s operations in the Australasia/Asia region and would be based in Bangkok. Qualified as a chartered accountant, he had joined IMS International in 1972 and served in the finance department until 1987, when he assumed his present operational responsibility in Bangkok. Mr. Paul Keane (British, age 46) would be the chief financial officer, based in London. He had served as financial controller of the IMS International Communications Division since 1987 and was a chartered accountant. Prior to IMS, he had worked for various firms in auditing, merchant banking, and corporate planning.

-7-

UVA-F-1032

Dun & Bradstreet D&B, the seller of the businesses that would form MediMedia, was a major purveyor of business information. It sold credit reports on more than 9 million businesses, published the Yellow Pages telephone directories, published bond ratings through its Moody’s Investors Services subsidiary, and measured television audiences through its A. C. Nielsen subsidiary. D&B had been thrown on the defensive in late 1990 by charges that its Credit Services unit (which sold credit reports on companies) had engaged in systematic sales churning. In addition, its A. C. Nielsen subsidiary was being squeezed by price competition and rising costs. Value Line expected D&B’s earnings to decline by 10 percent, but believed the company was in “rock-solid” financial shape.

The Financial Advisors Kleinwort Benson, Ltd., was one of the major international merchant banks in the city of London and had acted as senior lender, mezzanine lender, equity investor, and corporate advisor to investors in over 100 buyouts. Its European Mezzanine Fund (formed in a partnership among KB and other major institutional investors) had committed resources available to it in excess of ECU80 million.2 The fund aimed to place amounts between $3million and $20 million with Western European borrowers that had cash flow, strong market share, high barriers to entry, strong management, the absence of cyclicality, and low capital intensity. BHF was headquartered in Frankfurt and provided a full range of corporate-banking and investment-banking services. At the end of 1990, its total assets were (Deutsche marks) DM38.8 billion. BHF’s shares were listed for trading on all regional stock exchanges in Germany as well as on exchanges in Basle and Zurich. 2

A promotional brochure published by Kleinwort Benson explained mezzanine debt as follows: [It] is a form of capital that comes between equity and debt. In essence, it fills the gap between the amount of senior debt which can be advanced against the security of a company’s assets and its cash flow, and the limited amount of equity normally available. Mezzanine finance is generally subordinated to senior debt. It will typically have a junior pledge of security or be unsecured. Therefore, mezzanine providers look almost exclusively towards the cash flow generated by the business (although sometimes they also consider asset sales) in order to assess the likelihood of repayment. To compensate for the lack of security and the greater risk of nonpayment should the investee company encounter difficulty; mezzanine debt typically receives a higher rate of interest than a traditional bank loan. Specifically, the interest rate is often in the range of standard money market rates (LIBOR in the U.K.) plus 3 to 5%. There is also usually a further payment to the mezzanine provider after 3 or 5 years related to the increase in the value of the company over that period. This final payment can be made by issuing warrants which are convertible into ordinary shares in the company. Typically, the Fund would expect the mezzanine finance that it provides to have a 6 to 9 year nominal maturity but realistic prospects for refinancing or repayment from other sources within 3 to 5 years, if the business is as successful as planned. . . . An institutional investor would usually expect an internal rate of return (IRR) of over 40% for providing equity capital in an MBO, whereas a mezzanine lender would aim for an IRR of between 20% and 30%, depending on interest rates and the risks inherent in the transaction. The use of mezzanine finance reduces the amounts required of senior debt and equity. This results in a safer senior loan in terms of better asset coverage and a larger capital base. It is, therefore, easier to raise senior debt and, since mezzanine can improve the return on investment, it becomes easier to raise equity capital.

-8-

UVA-F-1032

Medimedia’s Business Plan and Financial Forecast The financial forecast for the period 1991-98 (see Exhibits 7, 8, and 9) suggested that the outstanding debt under the senior term loan facility could be repaid in full within six years. The figures for 1991 were extracted from management’s annual budget for D&B and reflected a consolidation of local operating units’ own projections. The figures for 1992 also were based on local operating-unit estimates (the projections for 1993 a beyond had no detailed recourse to local operating units). An important feature of the projections was that they assumed no asset sales, acquisitions, capital expenditure cutbacks, or cost-reduction programs. Revenue in 1991 was expected to grow at 21 percent; this forecast was significantly influenced by the weakening of the U.S. dollar against those European currencies that accounted for over two-thirds of the group’s revenues. At constant rates, revenue growth would be 11 percent. Growth in 1991 was expected to be achieved through a combination of price increases (to keep pace with inflation), new products, increased publication frequency, and the publication of certain biannual products. The modest improvement in gross margins projected for 1991 was believed to be conservative, because of the absence of substantial one-time costs for restructuring, relaunches, and redundancies taken to direct costs during 1990. Management forecasted no other significant margin improvements, although it expected improved performance from several products. Management assumed no improvement in working-capital control in 1991 and only a modest improvement in 1992. Historically, there had been little incentive to speed cash collection, although management believed there was considerable room for improvement. The projections assumed a 30 percent effective tax rate, even though the marginal corporate tax rate throughout most of the European Community and the United States was about 35 percent. This lower rate reflected efforts to create a tax-efficient corporate structure by channeling earnings away from high-tax jurisdictions and debt toward those low-tax jurisdictions. Exhibit 10 presents information on publishing and information services companies. Given MediMedia’s peculiar market niche, no single company could be a perfect comparison; but the multiples and aggregate information could give a financial analyst a sense of comparative financial performance. Exhibits 11, 12, and 13 summarize information on capital-market conditions in dollars, pounds, and ECUs. KB analysts assumed, for the sake of their financial analyses (see projections in Exhibits 7, 8, and 9), that the ECU London Interbank Offering Rate (LIBOR) would be 10 percent and the dollar LIBOR would be 6.75 percent for the duration of the forecast period.

-9-

UVA-F-1032

Conclusion This proposed transaction was structured around the classic model for the leveraged buyout: the financing structure involved the aggressive use of debt, arrayed across several tiers of the capital structure; management also expected to service the debt from the strong cash flow of the business, its growth, and hoped-for operating economies; finally, the layer of mezzanine debt included warrants, giving those investors a play on MediMedia’s equity. Observers wondered how large the gains from improved operating performance and debt financing would be in this instance, and how the new wealth thus created would be parlayed among the various participants in the transaction. More important, were the prospective returns sufficient to attract lenders and investors? Kleinwort Benson had noted that mezzanine investors looked for internal rates of return of between 20 and 30 percent, and that institutional-equity investors looked for internal rates of return of over 40 percent. To generalize about target rates of return for bank lenders was difficult, although most banks had difficulty producing returns of more than one percent on their entire loan portfolios. For highly leveraged transactions, some banks looked for internal rates of return of more than 2 percent on loans.3 The transaction also offered some unusual twists: (1) a significant part of the debt was denominated in ECUs, (2) the managers of the new company would be the sole providers of the equity capital—no outside equity investors would help consummate the deal, and (3) the structure included a vendor note that appeared to carry an extraordinarily low coupon. Observers wondered what motivated these unusual features, and how, if at all, they might contribute to the success of the transaction.

3

The 1 and 2 percent benchmarks assumed that the internal rate of return was calculated as net of funding costs and of the bank’s taxes on profits from the loan. Observers estimated that 35 percent would be an appropriate marginal tax rate for a bank lender. Also, a bank’s cost of funds was typically 200 basis points (two percentage points) below LIBOR.

-10-

UVA-F-1032

Exhibit 1 MEDIMEDIA INTERNATIONAL, LTD. Historical Operating Performance, 1987-1990

1987 Revenue Costs Local operating profit Central costs Operating profit Local operating profit margin (%) Operating profit margin (%)

Source: Offering memorandum.

$89,387 (76,874) 12,513 (3,953) 8,560 14.0 9.6

1988 (11 Months Only)

1989

$87,819 (77,666) 10,153 (2,523) 7,630 11.6 8.7

$97,772 (85,201) 2,521 (2,984) 9,537 12.8 9.8

1990 $110,897 (98,466) 12,431 (3,525) 8,906 11.2 8.0

-11-

UVA-F-1032

Exhibit 2 MEDIMEDIA INTERNATIONAL, LTD. Prominent Issues in Approaching the Buyout 1.

Price. It is crucial to determine the appropriate purchase consideration for the target company. This is done using several different methods, the most common of which are: (1) comparable transactions in the industry; (2) discounted cash flow. In a more general sense financiers seek to answer the question, “How much debt can the company prudently service given its industry, competitive position, growth potential, and other factors?”

2.

Capital Structure. Once the purchase price is determined, the question becomes how the buyout should be financed. That is, what proportion of the total capital should be equity, mezzanine (if applicable), or bank loans (senior debt). This decision is made on the basis of a variety of factors but must accommodate both the need for a decent return on the equity and mezzanine layers and the need for an amount of senior debt that banks are likely to provide.

3.

Identity of the Financiers. As the issues of capital structure are resolved, the lead debt arranger for the transaction must have a firm idea on which specific financial institution can be counted upon to finance the deal. The “target list” of senior and mezzanine lenders and equity providers (the latter is not applicable in this case) is drawn up by a combination of people from the LBO unit and the financing desk (bank syndications group) based on knowledge of the deal and the market.

4.

Deal Timetable. The various parties involved in an LBO often are driven by external constraints. These constraints need to be known and a realistic timetable designed, within those limits.

5.

Due Diligence. This term traditionally refers to the process of researching and investigating the target company, its competitive position, and the industry. With regard to the company, the emphasis is on the accounting and a legal examination of all relevant ledgers, books, contracts, and documents. The purpose of this examination is to determine the historical status and performance of the company: this forms the basis of a view on the likely projected performance of the business. The most time-consuming part of this process is undoubtedly the accountants’ investigative report, usually called a “Long Form Report.”

6.

Legal and Tax Structure. Apart from the capital structure, parties in an LBO must decide how the new company will be organized, because organizational decisions will have a decisive impact on whether the financing can be arranged in a satisfactory form and whether an inappropriately high level of tax can be avoided. The advice of legal and tax counsel is necessary.

Source: International memorandum, Kleinwort Benson.

-12-

UVA-F-1032

Exhibit 3 MEDIMEDIA INTERNATIONAL, LTD. Proposed Terms, Senior Revolving and Term Debt Borrowers: New holding companies in the Netherlands, Hong Kong, Switzerland, Germany, and France, as well as Les Editions du Médecin Généraliste S.A. Guarantors: MediMedia (the ultimate parent), the regional holding companies, and Les Editions du Médecin Généraliste S.A., jointly and severally. Purpose: To finance the acquisition, and pay the fees, costs, and expenses relating thereto. Currency: The senior term loan facility will be divided into two tranches, A and B. Tranche A drawings will be denominated in ECUs, and tranche B drawings will be denominated in U.S. dollars. Advances under the revolving loan facility may be in U.S. dollars and other freely convertible foreign currencies. Amounts: The senior term loan facility aggregate drawings under tranche A: ECU 10,090,000. Aggregate drawings under tranche B: US$18,000,000. Revolving loan facility amount is US$4,000,000, or the equivalent in other currencies. Agent: BHF-Bank, Frankfurt. Lead Managers: Kleinwort Benson, Ltd., and BHF-Bank. Repayment: Revolving loan facility must be repaid in full no later than the seventh anniversary of the senior facilities agreement. Senior term loan installments: 30 November 1991 30 November 1992 30 November 1993 30 November 1994 30 November 1995 30 November 1996 30 November 1997

Tranche A 0 0 ECU 1,550,000 ECU 1,800,000 ECU 2,150,000 ECU 2,525,000 The balance

Tranche B US$2,000,000 US$4,000,000 US$1,850,000 US$2,000,000 US$2,500,000 US$3,000,000 The balance

-13-

UVA-F-1032

Exhibit 3 (continued) The facilities will be automatically repayable in full upon the occurrence of (1) a flotation or listing of MediMedia’s share capital, (2) any material change in control, or (3) any event that would give rise to mandatory prepayment of the subordinated vendor note. Prepayment: All prepayments shall be applied against scheduled repayment installments in inverse order of maturity. Drawings prepaid may not be reborrowed. Voluntary prepayment: Permissible, subject to a prepayment fee equal to 2.5 percent of any amounts repaid in year 1 and 1.5 percent of any amounts prepaid in year 2. Mandatory prepayment: Excess cash flow shall be applied in prepayment of outstanding principal. Excess cash flow shall mean (1) amounts received by way of rebate of the purchase consideration, (2) amounts received from asset disposals, (3) proceeds of any money-raising activities, and (4) cash generated for financing, less net interest accrued and scheduled principal payments. Interest rate: For both the revolving loan facility and the senior term loan facility, 2.25 percent over LIBOR for the relevant currency and period. Commitment fee: For the revolving loan facility, 0.5 percent per year on the unused portion of the facility. Financial covenants included: EBIT/Total interest expense EBIT/ Senior debt interest expense Cash generated for financing/Total interest expense

Minimum 2Η Minimium 3Η Minimum 1.2Η

General covenants: Negative pledge by MediMedia and all companies in the group. No payment of dividends or other distributions to investors. No share repurchase or redemption of shares. No change in the fiscal-year end. No acquisitions or formations of subsidiaries. No asset disposals. No additional borrowings. Security: A first charge over all the assets, including goodwill and other intangible assets, group revenue, and equity in subsidiaries. Governing law: English law. Source: Kleinwort Benson memorandum.

-14-

UVA-F-1032

Exhibit 4 MEDIMEDIA INTERNATIONAL, LTD. Proposed Terms, Mezzanine Debt Mezzanine Debt: ECU 10,810,000, Subordinated Secured Term Loan Borrowers: New regional holding companies in the Netherlands, Hong Kong, and Switzerland. Guarantors: MediMedia International (the ultimate parent company) and the regional holding companies, jointly and severally. Repayment: One installment, due 30 November 1998. Repayment and prepayment provisions similar to senior debt facilities. Prepayment is not permitted while senior debt is outstanding. Interest: 3.25 percent per annum over LIBOR. Warrants: To subscribe for ordinary shares in MediMedia equivalent to 15 percent of its fully diluted ordinary share capital (or 1.94 million shares). Exercisable at any time for a nominal consideration (i.e., $0.01 per share) either in whole or in part at the option of the warrantholders. After the seventh anniversary of the financing, the warrantholders may put shares acquired through exercise of the warrants to MediMedia at a price per share equal to 7 times earnings per fully diluted share. There will be 12.94 million shares on a fully diluted basis. Financial and general covenants: Similar to the senior debt facility. Participants: Agent: Kleinwort Benson, Ltd. Lead managers: Kleinwort Benson, Ltd., and BHF. Investors: Kleinwort Benson European Mezzanine Fund L.P. and BHF. Source: Offering memorandum.

-15-

UVA-F-1032

Exhibit 5 MEDIMEDIA INTERNATIONAL, LTD. Proposed Terms, Subordinated Vendor Note Subordinated Vendor Note: US$11 Million Junior Subordinated Debt Issuer: Regional holding companies of MediMedia in the Netherlands, Hong Kong, and Switzerland. Guarantors: MediMedia and its regional holding companies, jointly and severally. Holder: Dun & Bradstreet Group. Final Maturity: 10 years from the issuance date. Interest: Years 1 and 2: fixed rate equal to 0.52 percent per year over the average yield of 9- and 10-year U.S. Treasury bonds. During the first two years, interest will be paid by means of noninterest-bearing deferred notes, payable at final maturity of the subordinated vendor note. Years 3-10: cash interest of 0.52 percent over the interpolated yield on the two U.S. Treasury bonds whose final maturities are, at the subordinated note’s interest reset date, nearest to the final maturity of the subordinated vendor notes. Interest that cannot be paid in cash after year 2 will be satisfied by another issue of notes carrying same terms. Mandatory prepayment: After satisfaction of the senior and mezzanine loans, prepayment must occur upon: (1) sale or disposal of all the assets; (2) sale of share capital; (3) listing of share capital; (4) merger or consolidation of MediMedia. Security: Ranking junior to senior and mezzanine loans. Otherwise, security interest is similar to those facilities. Subordination: Repayments of principal on these notes may not be made unless the senior and mezzanine loans have been fully discharged. Profit participation: The noteholder will be entitled to share in gains arising from disposals made by, or flotation of, the MediMedia group while the notes are outstanding. The noteholder’s share will be equal to 25 percent of the gain if sold in the first year, 20 percent if in the second, 15 percent in the third, and 10 percent each year thereafter until maturity of the loan. No amounts may be paid in cash until the senior and mezzanine loans have been fully discharged.

Source: Offering memorandum.

-16-

UVA-F-1032

Exhibit 6 MEDIMEDIA INTERNATIONAL, LTD. Volume of Deals, and Total Value Paid in U.K. Leveraged Buyouts, by Year

Source: Kleinwort Benson and KMPG Corporate Finance.

-17-

UVA-F-1032

Exhibit 7 MEDIMEDIA INTERNATIONAL, LTD. Forecasted Profits and Cash Flows, 1991-98, Fiscal Years Ending November 30 (US$ millions) 1988 EBIT Less interest on: Existing debt Working cap. revolver Senior term loan Mezzanine loan Junior sub. debt Total interest expense Interest income Tax expense Net income Depreciation lncrs. deferred taxes Capital expenditures Decrs. accts. recvbl. Decrs. inventories Decrs. prepaid expense Incrs. accts. payable Incrs. taxes payable Incrs. accrued liabs. Noncash interest exp. Cash avail. for debt repayment Scheduled debt repayments Senior term Mezzanine Junior sub. Total Revolver repayment Residual cash flow (Addition to cash balance) Source: Offering memorandum.

Historical 1989

1990

7.60

9.50

8.90

N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. 0 (0.10) 0 1.80 0.30 0 0.50 0 0 0 N.Av.

N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. 1.30 0 0 0.70 0 (1.20) 0.80 0 0 0 N.Av.

N.Av. N.Av. N.Av. N.Av. N.Av. 10.10

N.Av. N.Av. N.Av. N.Av. N.Av. 11.10

1991

1992

1993

Projected 1994 1995

1996

1997

1998

11.42

14.60

16.89

18.25

19.71

21.29

23.00

24.85

N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. N.Av. 2.00 0.70 0 (6.40) (1.20) (0.80) (10.80) 1.30 11.30 0 N.Av.

1.00 0.17 1.69 0.99 0.47 (4.32) 0.32 (1.82) 5.60 1.90 (0.25) (2.69) (0.02) 0.17 0.40 0.18 0.45 (1.33) 0.47 4.88

0.03 0.17 3.20 1.99 0.94 (6.33) 0 (2.53) 5.74 1.98 (0.19) (1.40) (2.24) (0.23) (0.12) 0.80 0.57 0.70 0.94 6.55

0.03 0.17 2.83 1.99 0.94 (5.96) 0.13 (3.38) 7.68 2.01 (0.20) (2.64) (2.73) (0.32) (0.14) 1.15 0 0.85 0.47 6.13

0.03 0.17 2.83 1.99 0.94 (5.51) 0.25 (3.95) 9.04 2.11 (0.20) (2.77) (2.95) (0.40) (0.15) 1.41 0 0.92 0 7.01

0.03 0.17 1.87 1.99 0.94 (5.00) 0.38 (4.58) 10.51 2.22 0 (2.91) (3.19) (0.43) (0.16) 1.52 0 0.99 0 8.55

0.03 0.17 1.25 1.99 0.94 (4.38) 0.55 (5.29) 12.17 2.22 0 (2.91) (3.44) (0.46) (0.18) 1.64 0 1.07 0 10.11

0.03 0.17 0.52 1.99 0.94 (3.65) 0.74 (6.08) 14.01 2.22 0 (2.91) (3.72) (0.50) (0.19) 1.77 0 1.16 0 11.84

0.04 0.17 0.00 1.99 0.94 (3.14) 1.06 (6.89) 15.88 2.22 0 (2.91) (4.02) (0.54) (0.21) 1.91 0 1.25 0 13.58

N.Av. N.Av. N.Av. N.Av. N.Av. 5.00

2.00 0 0 2.00 (1.70) 4.58

4.00 0 0 4.00 0 2.55

4.00 0 0 4.00 0 2.13

4.50 0 0 4.50 0 2.51

5.50 0 0 5.50 0 3.05

6.50 0 0 6.50 0 3.61

5.50 0 0 5.50 0 6.34

0 15.00 0 15.00 0 (1.42)

-18-

UVA-F-1032

Exhibit 8 MEDIMEDIA INTERNATIONAL, LTD. Historical and Forecasted Net Assets and Capital Structure, 1991-98 (US$ millions) Pre-Closing Pro Forma Nov. 1990 Changes Nov.1990 Net Assets Net working capital $11.04 Gross PPE 7.71 Accumulated depreciation 0 Net PP&E 7.71 Other LTA 2.42 Goodwill 0 Transaction costs 0 Total net asset 21.17 Capital structure: Existing debt 0.29 Revolver 0 Senior term debt 0 Mezzanine debt 0 Junior subordinated debt 0 Total debt 0.29 Deferred tax 0.84 Equity 32.33 Total capital 33.46 Ending debt/equity (Η) 0.01 Avg. debt/equity (Η) EBIT/ interest (Η) EBIT/interest & principal (Η) Source: Offering memorandum.

$ (4.47)

1991

1992

1993

1994

1995

1996

1997

1998

$ 6.57 7.71 0 7.71 2.42 45.93 7.50 70.13

$11.30 10.40 1.90 8.50 2.42 45.93 7.50 75.65

$14.37 11.80 3.88 7.92 2.42 45.93 7.50 78.14

$17.69 14.44 5.89 8.55 2.42 45.93 7.50 82.09

$21.37 17.21 8.00 9.21 2.42 45.93 7.50 86.43

$25.69 20.12 10.22 9.90 2.42 45.93 7.50 91.44

$30.67 23.03 12.44 10.59 2.42 45.93 7.50 97.11

$ 38.49 25.94 14.66 11.28 2.42 45.93 7.50 105.62

$ 38.68 28.85 16.88 11.97 2.42 45.93 7.50 106.50

(21.33) 48.96

0.29 0 32.00 15.00 11.00 58.29 0.84 11.00 70.13

0.29 1.70 30 15.00 11.47 58.46 0.59 16.60 75.65

0.29 1.70 26.00 15.00 12.41 55.40 0.40 22.34 78.14

0.29 1.70 22.00 15.00 12.88 51.87 0.20 30.02 82.09

0.29 1.70 17.50 15.00 12.88 47.37 0 39.06 86.43

0.29 1.70 12.00 15.00 12.88 41.87 0 49.57 91.44

0.29 1.70 5.50 15.00 12.88 35.37 0 61.74 97.11

0.29 1.70 0 15.00 12.88 29.87 0 75.75 105.62

0.29 1.70 0 0 12.88 14.87 0 91.63 106.50

36.67

4.92

3.40 4.16 2.6 2.5

2.44 2.92 2.3 1.4

1.72 2.08 2.8 1.7

1.21 1.46 3.3 1.8

0.84 1.03 3.9 1.9

0.57 0.71 4.9 2.0

0.39 0.48 6.3 2.5

0.16 0.28 7.9 1.4

45.93 7.50 48.96 0 32.00 15.00 11.00 58.00

-19-

UVA-F-1032

Exhibit 9 MEDIMEDIA INTERNATIONAL, LTD. Forecast of Free Cash Flows and Tax Savings from Debt (US$ in millions) Free Cash Flow Forecast EBIT Taxes EBIAT

1991 $11.42 -2.86 8.57

1992 $14.60 -4.53 10.07

1993 $16.89 -5.24 11.65

1994 $18.25 -5.48 12.78

1995 $19.71 -5.91 13.80

1996 $21.29 -6.39 14.90

1997 $23.00 -6.90 16.10

1998 $24.85 -7.46 17.40

1.90 -0.25 -2.69 -0.02 0.17 0.40 0.18 0.45 -1.33 $7.38

1.98 -0.19 -1.40 -2.24 -0.23 -0.12 0.80 0.57 0.70 $9.94

2.01 -0.20 -2.64 -2.73 -0.32 -0.14 1.15 0.00 0.85 $9.63

2.11 -0.20 -2.77 -2.95 -0.40 -0.15 1.41 0.00 0.92 $10.75

2.22 0.00 -2.91 -3.19 -0.43 -0.16 1.52 0.00 0.99 $11.84

2.22 0.00 -2.91 -3.44 -0.46 -0.18 1.64 0.00 1.07 $12.84

2.22 0.00 -2.91 -3.72 -0.50 -0.19 1.77 0.00 1.16 $13.93

2.22 0.00 -2.91 -4.02 -0.54 -0.21 1.91 0.00 1.25 $15.10

$4.32 ($0.32) ($0.47) $3.53 $0.88

$6.33 $0.00 ($0.94) $5.39 $1.67

$5.96 ($0.13) ($0.47) $5.36 $1.66

$5.51 ($0.25) $0.00 $5.26 $1.58

$5.00 ($0.38) $0.00 $4.62 $1.39

$4.38 ($0.55) $0.00 $3.83 $1.15

$3.65 ($0.74) $0.00 $2.91 $0.87

$3.14 ($1.06) $0.00 $2.08 $0.62

Cash Flow Adjustments + Depreciation + Incrs. Deferred Taxes - Capital Expenditures + Decrs. in Accts. Recvbl. + Decrs. in Inventories + Decrs. in Prepaid Expenses + Incrs. in Accts. Payable + Incrs. in Taxes Payable + Incrs. in Accrued Liabs. Free Cash Flow

Forecast of Annual Debt Tax Shields Interest Expense - Interest Income - Interest not paid in cash Net Deductible Interest Exp. Annual Tax Reduction

Source: Casewriter analysis, drawing on offering memorandum.

-20-

UVA-F-1032

Exhibit 10 MEDIMEDIA INTERNATIONAL, LTD. Information on Comparable Companies

Beta

Axel Springer Verlag AG (Germany) Publishes newspapers, specialty magazines, books, and market research data reports. Commerce Clearing House (U.S.) Publishes looseleaf reports, periodicals, and books on current developments in tax and business law. Foreign operations account for 13 percent of revenues. Dun & Bradstreet (U.S.) Sells credit information, “Yellow Pages,” and financial ratings. Elsevier N.V. (Netherlands) Publishes newspapers, consumer magazines, trade books, scholarly journals, and scientific and medical journals. EMAP PLC (U.K.) Publishes consumer magazines, business magazines, and newspapers, and holds trade shows. Owns 13 radio stations. Euromoney Publications PLC (U.K.) Publishes international financial news, information and analyses through magazines, surveys, books, directories, data bases, conferences, and seminars.

Volatility or Sigma

Book Value Debt/Equity Ratio

Market Value Last Year Debt/Equity Operating P/E Ratio Margin

N.Av.

N.Av.

0.362

N.Av.

0.70

0.35

0.075

0.028

1.10

0.20

0.120

1.05

0.30

1.03

1.05

2.7%

Expected Dividend Ratio Yield

Expected Five Year Growth Rate of Revenues Divs.

N.Av.

N.Av.

N.Av.

N.Av.

13.5

21.3

2.3%

7.5%

4.0%

0.030

22.0

16.5

3.1

8.5

8.0

0.030

0.005

18.9

19.0

4.0

N.Av.

N.Av.

0.32

0.061

0.021

12.3

11.1

N.Av.

N.Av.

N.Av.

0.23

0.037

0.010

19.0

15.5

4.5

N.Av.

N.Av.

-21-

UVA-F-1032

Exhibit 10 (continued) Havas S.A. (France) 1.10 Sells local media, directories, international multimedia, tour services, advertising, and consulting. Houghton Mifflin Co. (U.S.) 1.20 Publishes textbooks and materials for colleges and schools. International Thomson Organization 1.20 Specialized publisher for professional groups (39% of revenues), publisher of regional newspapers in U.K. (21%), and operator of leisure travel business (40%). McGraw-Hill Inc. (U.S.) 1.20 Publishes textbooks, technical, and popular books, business and industrial periodicals (e.g., Business Week, Aviation Week, etc.). Owns 4 TV stations. Meredith Corp. (U.S.) 1.20 Publishes Better Homes and Gardens, Ladies Home Journal, Country Home, Metropolitan Home, Successful Farming, plus books on cooking and hobbies. Owns 7 TV stations. Insiders control 59 percent of shareholder votes. Pearson PLC (U.K.) 1.00 Publishes newspapers and magazines (Economist) holds interests in entertainment, oil services, and investment banking. Reed International PLC (U.K.) 1.33 Principal activities are publishing and business information.

N.Av.

0.283

0.059

3.7

23.6

1.0

N.Av.

N.Av.

0.20

0.250

0.176

17.0

18.3

2.1

9.5

9.5

0.65

0.294

0.200

3.0

27.0

1.9%

7.0%

6.5%

0.20

0.500

0.249

19.5

15.3

2.7

6.5

6.5

0.65

0.294

0.200

3.0

27.0

1.9%

7.0%

6.5%

0.30

0.570

0.250

16.0

14.0

N.Av.

N.Av.

N.Av.

0.37

0.618

0.400

15.7%

11.3

N.Av.

N.Av.

N.Av.

Source: Value Line Investment Survey, March 8, 1991; Moody’s International Corporate Manual, 1991; Risk Measurement Services, January 1991; and casewriter estimates.

-22-

UVA-F-1032

Exhibit 11 MEDIMEDIA INTERNATIONAL, LTD. Current Debt Capital Market Conditions as of Late February, 1991 Yields on U.S. Treasury Debt Securities 1-month ........................................... 6.37% 3-months ......................................... 6.18 6-months ......................................... 6.27 1-year .............................................. 6.37 2-years ............................................. 7.00 3-years ............................................. 7.22%

4-years .................................... 7.41% 5-years .................................... 7.58 7-years .................................... 7.82 8-years .................................... 7.87 10-years .................................. 7.92 30-years .................................. 8.08%

Yields on 10-Year Debt of Other Governments United Kingdom Japan Germany France Netherlands

9.97% 8.06 8.29 8.97 8.56%

Yields on High-Grade U.S. Corporate Bonds 1-3 years 5-10 years 15 + years

8.13% 8.66 9.20% Bank Lending Rates

U.S. prime rate U.K. base lending rate LIBOR (US$)

9.00% 13.50 6.75% Interest Rate Trends

Source: Financial Times, February 26, 1991; and OECD Financial Indicators, March 1991 and June 1990.

-23-

UVA-F-1032

Exhibit 12 MEDIMEDIA INTERNATIONAL, LTD. Current Equity Capital Market Conditions as of Late February, 1991 Dividend Yield FTSE 500 (London) S&P 500 (New York) Dow Jones Industrials

4.91% 2.19 3.44

P/E Ratio 11.49Η 17.77 N.Av.

Equity Market Trends Major World Equity Markets

Source: Financial Times of London, daily issues at seven-day intervals, January 1 to February 22, 1991.

-24-

UVA-F-1032

Exhibit 13 MEDIMEDIA INTERNATIONAL, LTD. Current Foreign Exchange Market Conditions as of Late February, 1991

Spot US$/ECU US$,

1-Month Forward

1.3535 1.92225

3-Month Forward

+0.31 +0.98

Trends in Foreign Exchange Rates

(Last Four Years) Source: Financial Times, February 26, 1991; OECD Financial Indicators, March 1991 and June 1990.

+0.91 +2.76