Speculating on buyouts can be dicey. Just look at the situation with Nielsen Holdings (NYSE:NLSN), which is a leading global measurement and data analytics company. Last week a report from the New York Post sent the company’s stock reeling by about 10%. The result is that most of the gains for the year for Nielsen stock were wiped out.
Source: David Boyle via Flickr
The news report indicated that the company’s efforts to sell itself have hit a wall that is, it appears that Blackstone Group (NYSE:BX) has backed away from the deal. It also looks like Apollo Global Management (NYSE:APO) has been losing interest as well.
So what now? Is this a sign to stay away from Nielsen stock? Or might there be value here? Well, it is not unusual for buyers to get cold feet. In auction situations, the valuations can get excessive. In fact, both BX and APO are known to be quite disciplined with their dealmaking.
But then again, when it comes to Nielsen stock, the valuation is really not a problem. Consider that the shares are trading at a forward price-to-earnings multiple of 12.6X. The dividend yield is also at an attractive 5.26%.
Now there are certainly some other positives. For example, Nielsen has a strong platform that goes well beyond TV ratings, such as providing measurement services for websites and apps. These are must-have offerings as brands need a way to evaluate their large marketing budgets. Nielsen is also highly trusted, as the company has been around for more than 90 years.
By having access to large amounts of data, Nielsen is in a position to leverage artificial intelligence. This technology should allow for providing predictions and insights, which should lead to more effective ad campaigns.
The Problems with NLSN Stock
Yet there still are some nagging issues. Note that last year the top-line flat-lined and there was a drop in operating cash flows from $1.3B to $1.06 billion. It looks as if this poor performance is a key reason for BX’s reluctance.
Why the slowdown? One problem is that NLSN’s customers are pushing back on price increases. Let’s face it, some of its major ones, such as Coca-Cola (NYSE:KO), Nestle (OTCMKTS:NSRGY), Unilever (NYSE:UN) and Procter & Gamble (NYSE:PG), are under pressure to rethink their marketing budgets.
Then there is the issue of online privacy. For the most part, new regulations in Europe have made it more difficult to measure audiences.
Oh, and something else: The company has initiated a restructuring. This has not only included a focus on reducing costs but also simplifying the operations. Because of a string of acquisitions, the IT platform is a jumble of legacy systems, which has made it difficult to leverage next-generation technologies.
We need to make faster, bolder decisions. We’re going to need to execute those decisions and we need to transform Nielsen into a truly product-driven measurement and technology organization,” said Nielsen CEO, David Kenny, on the latest earnings call.
Bottom Line On Nielsen Stock
Again, Nielsen stock is trading at reasonable levels. The dividend should also act as a cushion. And even though the cash flows are flagging, there should be enough to fund the dividend for a while.
Nevertheless, NLSN stock may still languish. The restructuring is still in the early stages and the marketing industry is undergoing major changes. It also is not encouraging that top-tier private equity firms appear to not have much interest. After all, they have access to large amounts of proprietary information about the company.
So given all this, it’s probably best to avoid NLSN stock for now.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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