A desire for liquidity drove Wolters Kluwer to issue a 10-year bond last month in an otherwise barren market. It was lapped up by investors.
The European public market for new, long-dated BBB paper has been a desert since before the present credit troubles began. The last issuers were BAT and Ericsson, back in June 2007. So the successful pricing of a 10-year bond by Wolters Kluwer last month came like a rare and welcome bloom.
The Dutch publisher and information services company embodies what is happening to the media in general, shifting away from traditional print products towards higher-margin electronic media. In 2003, 55% of its revenues came from print but by last year that had shrunk to 38%. Wolters is one of the world’s top three publishers of health, legal, corporate and financial, and tax and accounting information, with 2007 revenues of about €3.4bn from more than 30 countries.
The company has been through a period of restructuring since American Nancy McKinstry took over as chairman and CEO in 2003. When the company announced its 2007 results, which were as expected, it lowered its outlook for 2008 revenue growth, margins and cashflow, and its share price took a battering. It has pointed out, however, that it still intends to deliver double-digit earnings growth this year. It claims that its task will be made easier because its two big rivals, Thomson and Reed, will both be busy digesting large acquisitions.
Organic growth
“Growing organically is our first priority,” says Wolters corporate treasurer George Dessing, adding that the migration from print to electronic products will continue. “But we are also looking for bolt-on acquisitions.” In that spirit, the company has just paid £35.5m ($70m) for the UK and Ireland accountancy business of Australian software house MYOB.
Some of the €750m that Wolters raised with its bond issue will undoubtedly be spent on more of the same, although the company says only that the proceeds will be devoted to general corporate purposes and the refinancing of existing debt.
Liquidity aim
Wolters is not a frequent borrower. It was last in the public market in 2003, when it raised €700m in 10-year money. It has a €1bn multi-currency credit facility, some of which it has been drawing down in US dollars. At the end of February, it borrowed ¥20bn ($196m) over 30 years in a private placement.
“But we are focusing on a strategy of accelerated profitable growth, and it was important to have liquidity in place,” says Mr Dessing. “We weren’t going to sit on our hands and wait to see if the market would change.”
He stresses that the issue was prompted by a desire for extra liquidity rather than a desperate need for cash.
So, in spite of the trickiness of the marketplace, Wolters hit the road with its joint bookrunners, Deutsche Bank, ING and Rabobank, to tell its story to investors. Given anxieties about the next phase in the business cycle, a key strand in the tale was the non-cyclicality of its revenues.
“There is some cyclicality in the business but 80% of our products are non-cyclical,” says Mr Dessing. “And subscriptions make up two-thirds of revenues.”
This solidity is reinforced by the ‘must-have’ nature of its professional products – these are not, by and large, discretionary purchases. Furthermore, the information it sells has high added value because most of it is copyrighted proprietary content. Wolters also reminded investors of its “excellent” market positions and strong brands.
Order book frenzy
As the roadshow tore through London, Munich, Frankfurt, Amsterdam and Paris, investors clearly lapped it up. Wolters had set a target of between €500m and €750m when it opened the order books. The coupon was 6.38% and price guidance was between 200 basis points (bp) and 210bp over mid-swaps.
Within an hour, the bookrunners had registered an extraordinary €3bn of orders and were able to print a €750m deal, priced through the guidance range at 198bp over mid-swaps. The UK took 40% of the issue, with 20% going to Benelux, 20% to Germany and 8% to France. Asset managers bought 50% of it, while insurers and pension funds took 10% each. There was even a smattering of central bank demand, worth 2% of the whole.
“We obviously made the right decision to tap the market,” Mr Dessing says. “Feedback from the roadshow told us that investors were concerned about the market itself but that they loved the Wolters Kluwer story and the credit.”
The deal’s pricing compared favourably with other recent issues with shorter maturities from similarly rated borrowers like AT&T and KPN. “The coupon represents an acceptable price of funding if you compare it with our peers,” says Mr Dessing.
