Credit Suisse, Lehman Brothers and Citigroup sought to cook up a tasty deal for HM Riverdeep, but no one is ordering the fish. The item has been pulled off the financial menu.
Encountering some difficulties in selling $7.15 billion in bonds to finance the minnow's insatiable hunger, the banks have suggested. Riverdeep scarfed down Houghton Mifflin and then tackled Reed Elsevier's Harcourt Education unit, but someone has to foot the bill and bond traders have turned up their noses at the banker's offer.
Like the Chicago Cubs, it will be "wait until next year". There's not enough credit to go around these days, especially for deals that have questionable returns. Moody's rated the bonds as B3 with a negative outlook, which is not the sort of rating that would see nervous buyers put up their scarce cash. It's the uncertainty that is hurting the deal, questions as to whether or not Mr. O'Callaghan can achieve the returns he claimed. Will the cash flow be where it needs to be? Will all those mysterious cost-cutting "synergies" be realized? Well, not right before Christmas, at any rate. Too cruel to sack people en masse, er, I mean, realize synergies, during the holiday season.
As far as HM Riverdeep is concerned, the acquisition of Harcourt is going forward, pending a nod from the Department of Justice. With McGraw Hill and Pearson to serve as competitors, there should be enough evidence that the deal would not create a monopoly among educational materials publishers.
Davy Stockbrokers will hit on their clients for $235 million and Reed Elsevier has already agreed to kick into the kitty for the sake of unloading Harcourt. The bankers will be counting on an upswing in the bond markets so that they can sell off the oppressive weight of the minnow's tab. They were burned badly by the mortgage foreclosure fiasco, and they'd rather not take another hit with another round of defaults.