RTL's minority shareholders are right to seek more money

Edited by Hugo Dixon
Who can blame the minority shareholders in RTL for resisting Bertelsmann's 44 euro ($39.24) a share offer? With a new $6.75 billion (7.58 billion euros) receipt from AOL Time Warner in the Guetersloh war chest, it is natural that the minorities should seek a larger share of Bertelsmann's bounty.
Not that 44 euros a share is unfair. It values RTL at an adequate 13 times forecast 2002 earnings before interest, taxes, depreciation and amortization, or Ebitda, and Pearson succeeded in wringing out an 8% mark-up to market value. But even if the minorities are overdoing the outrage at the Bertelsmann offer, they are right to think there is scope for a better deal. Not only are the German group's coffers overflowing with cash. Last February, Bertelsmann paid for Groupe Bruxelles Lambert's stake in RTL with its own shares, in a ratio of 5 to 6. Bertelsmann is probably worth about 25 billion euros, so a deal like that would give minorities 135 euros of value a share, over three times the current offer.

Bertelsmann is already locked in litigation over last year's GBL deal with Audiolux and BGL, which together own about 1.3%. They argue that under European Union law, they should be offered the same terms GBL received, and the local securities regulator appears to have agreed with them. Now the small shareholders are coming to join the legal fray. As well as demanding Bertelsmann shares, they have a new cause of action that alleges bad faith on Bertelsmann's part. When RTL listed in London, the prospectus promised to increase the free float to 15%. Managers reiterated this commitment as recently as September 2001. Shareholders who bought -- or decided to hold -- since then feel misled.
Bertelsmann now has to take a view on these legal arguments. The minorities might just be holding an ace. Even if they are doomed to fail in court eventually, a lingering litigious rump could present a nuisance factor Bertelsmann would rather pay to get shot of. But the cost to Bertelsmann of any concession would be high, since it must extend it to Pearson, too. Its 44 euros offer will not formally start until February. Between now and then, a lot will ride on the RTL board's recommendation to its shareholders of where their interests really lie.

Wall Street Journal 11.01.02