ABI's $33-Per-Share Bid For Metromail Tops GUS' $31.50

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Great Universal Stores PLC (GUS) has a fight on its hands as it attempts to complete a merger agreement with Metromail by March 31.


American Business Information (ABI), Omaha, NE, announced an offer of $33 per share, or roughly $775 million, March 18 that betters the March 13 tender offer of $31.50 per share, or $740 million, made by Experian parent GUS, Manchester, UK. ABI also has filed suit in Delaware Chancery Court to block the GUS deal.


ABI has a shot at Metromail, Lombard, IL, because of the standard inclusion of an escape clause in the GUS deal that gives Metromail a few more weeks to attempt to maximize its sale price.


Metromail's stated goal in declaring itself for sale Feb. 10 was to examine alternatives to increase shareholder value. The stock, which had been languishing well below its 1996 IPO price of $20 per share, jumped $8.44 upon announcement of its sale and climbed $5.63, to $31.50, upon announcement of the tender offer March 13. The GUS deal price represented a 90 percent premium over its Feb. 9 trading price of $16.63.


To take advantage of British accounting practices that would allow it to take a one-time goodwill amortization, GUS is seeking to close the deal by March 31, the end of its fiscal year. Metromail can continue to negotiate with other bidders until March 30 but must pay GUS a standard breakup fee of $15 million should it back out of the tender offer.


The lawsuit, which will be heard March 27, says that Metromail failed to conduct a fair auction and issued improper share options to co-defendants chairman Barton Faber, Thomas Quarles, Ronald Eidell, Jonathan Ward and Peter Murphy five days before declaring the company for sale. This dispersal of 562,000 shares at $16.69 would net senior management more than $9 million at the bid price of $31.50.


An industry source said the lawsuit is an attempt to discredit normal merger practices and pointed out that GUS would have an opportunity to top any higher offer. Another source said that for Metromail to overturn the suit, it must prove it has honored a fiduciary responsibility to its shareholders. ABI stock has dropped nearly $4 since the bid and lawsuit were announced.


Although a confidentiality agreement ABI was required to sign prevents it and other companies from making a hostile takeover bid without Metromail board approval, the ABI bid is not expected to be the last in a courtship that has seen Metromail receive more than 30 inquiries since last month.


ABI chairman Vin Gupta has publicly declared a desire to gain access to data and become a full-service provider. A source familiar with the negotiations listed Acxiom, First Data Corp., Harte-Hanks and Polk as other potential bidders. ABI and four other companies were sent draft merger agreements March 5, but at the time none could top GUS, a holding company for a group of companies that includes Great Universal Stores, the largest mail-order house in the United Kingdom, and apparel retailer Burberry's. ABI, which holds 1 million of the 22.5 million outstanding Metromail shares, says the company ignored its higher offer at that time of $31.75 per share.


Should ABI's actions launch a bidding war, companies with the most cash to hand would have an advantage. Industry analysts have estimated that Metromail could fetch as much as $39.44 per share, or $920 million.


"It's easier for GUS and First Data,'' said Janet Del Giudice, an analyst with Salomon Smith Barney. "If there is a bidding war, it's going to be the guy that has the deep pockets. Acxiom would definitely need the financing.''


The GUS deal, subject to customary conditions, government approval and expiration of applicable waiting periods under the Hart-Scott-Rodino Act, would combine Metromail, Lombard, IL, with Experian, Orange, CA, and Direct Tech, Schaumburg, IL, to form a direct marketing powerhouse with annual revenues in excess of $1.5 billion.


"When and if completed, this transaction marks an important milestone in the increasingly rapid consolidation of the direct marketing services industry,'' said Michael Stake, vice president at Lehman Brothers. "One of Metromail's key assets is their consumer database. There are only a couple other companies of their size left in the market.''


Of the other leading compilers, Polk is privately held, and First Data Infosource -- the former Donnelley Marketing -- is part of First Data Corp.


The degree of interest in Metromail demonstrates the company's unique value. Faber has said that the direct marketing industry is consolidating and that Metromail would benefit from becoming part of a larger, stronger company.


"We want to be a major owner and supplier of data with a technology platform and an information platform,'' Faber said the day before ABI made its rival bid.


"There are just not that many big databases,'' Del Giudice said. "There is a scarcity of assets that are available. GUS wanted to get their hands on the data.''


Although pleased with the GUS offer, Metromail apparently was not pleased enough to curtail negotiations with other prospective buyers. When it appeared that GUS would end its merger discussions Feb. 27 because of the failure of Metromail to resolve certain legal and operational issues, Metromail arranged to hear from the other interested companies.


GUS came back with a new offer March 6 stipulating that Metromail and its primary shareholder, R.R. Donnelley & Sons -- which holds around 40 percent of all shares -- enter into a stock purchase agreement. On March 8 it offered to buy Metromail at $31.50 per share.


Should Metromail and GUS complete the tender offer, it would end close to two years of jockeying for control of the former Donnelley subsidiary and cement a relationship that has a history just as long. When Metromail was pursuing its IPO, Donnelley had considered selling it to the investor group Bain Capital and Thomas H. Lee, which eventually bought the credit bureau TRW in May 1996 and renamed it Experian. GUS bought Experian six weeks later and combined it with CCN. In 1997, GUS added Direct Tech.


Experian, which has partnered with Metromail since 1996 on the Insource consumer enhancement database, also was among a group of at least five companies that had expressed interest in Metromail since late last year. Formal acquisition discussions began in late January and by Feb. 25, GUS representatives laid out contingencies that if fulfilled would lead to a purchase offer.


The merger would give Experian, a worldwide supplier of credit data as well as automotive and real estate information services, significantly increased direct mail production and data warehousing capability.


"We are quite a large company today and [buying Metromail is] certainly consistent with our strategy to be a global information source,'' said Van Skilling, Experian chairman and CEO. "The companies are very complementary and will result in relatively little overlap.''
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