Nielsen Holdings NV (NLSN:US), the biggest tracker of U.S. television ratings, agreed to buy Arbitron Inc. (ARB:US) for about $1.26 billion in cash, giving it access to the largest source of data on the country’s radio listeners.
The $48-a-share offer is 26 percent higher than Arbitron’s closing price yesterday. Excluding acquisition costs, the purchase will add about 13 cents to earnings per share in the year after it’s completed, Nielsen said today in a statement. The New York-based company is financing the entire transaction.
If it passes regulatory hurdles, the deal will extend Nielsen’s dominance in television to radio. The company wants to offer its advertisers a unified system that measures audiences across multiple forms of media, making it easier for them to make ad-buying decisions -- whether on TV, radio or the Web. The move follows a partnership with Twitter Inc. yesterday that will monitor discussions of TV shows on the social network.
“We want to cover as much of the media landscape as possible and be helpful to our clients in that way,” said Steve Hasker, Nielsen’s president of global media products, who will oversee Arbitron after the merger. Marketers are looking for simpler ways to compare their ad spending across media, he said. As part of that effort, Nielsen plans to start measuring popular digital radio services such as Pandora Media Inc. (P:US) after the acquisition, according to Hasker.
Nielsen, which once relied on handwritten diaries by TV viewers, now measures audiences through electronic-metering devices installed in panelists’ homes. Arbitron uses a similar system for radio listeners.
The deal still faces antitrust scrutiny from the U.S. Federal Trade Commission, said Rich Tullo, an analyst at Albert Fried & Co. in New York. Nielsen controls more than 80 percent of the TV-rating industry, while Arbitron has more than 90 percent of the market for terrestrial-radio ratings, he said.
“It’s a monopoly in radio and a monopoly in TV -- the FTC is going to want to understand the transaction,” Tullo said in an interview. After the deal was announced, he downgraded Arbitron’s rating to the equivalent of a sell from a neutral recommendation.
Shares of Columbia, Maryland-based Arbitron rose 9 percent to close at $47.03 in New York. The stock has gained 37 percent this year. Nielsen shares (NLSN:US) climbed 4.4 percent to $30.92.
The companies also have a joint venture called Scarborough Research that monitors print advertising and other consumer data. If that is divested, the deal has an 80 percent chance of going through, Tullo said, though not before a long review.
“I would expect to see some push back from local customers like local radio and TV operating groups,” he said. “The concern is that they would have the ability to bundle services and block competitors out of the business.”
Nielsen said it needs Arbitron to better measure consumers’ media habits when they’re out of the home. In addition to tracking traditional radio, Arbitron will provide more data on streaming audio. Nielsen also wants to improve its measurement of minorities, who are more likely to listen to the radio.
“U.S. consumers spend almost two hours a day with radio,” Nielsen Chief Executive Officer David Calhoun said in the statement. “The high level of engagement with radio and TV among rapidly growing multicultural audiences makes this central to Nielsen’s priorities.”
Nielsen -- which is controlled by private-equity investors, including KKR & Co. (KKR:US) -- makes money by helping advertisers, consumer-goods manufacturers, retailers and other companies figure out how to spend their marketing dollars. Together, Nielsen and Arbitron generated revenue of $6 billion and earnings before interest, taxes, depreciation and amortization of $1.7 billion in the 12 months ended Sept. 30.
Excluding transaction costs and other expenses, Nielsen expects the Arbitron purchase to add about 19 cents a share to earnings within two years of the deal’s completion. The companies are looking to save at least $20 million by merging their operations, mostly from combining technology systems and spending less to obtain data.
“We think this is positive to shareholders,” Robb LeMasters, managing director of Blue Harbour Group LP, said in an interview. Greenwich, Connecticut-based Blue Harbour holds 5.2 percent of shares (ARB:US) in Arbitron. Advertisers are placing more importance on better media measurement, he said.
Nielsen, which has a headquarters office in the Netherlands in addition to New York, is counting on the deal to expand its Watch program for measuring audiences across different kinds of devices. The company faces mounting competition on the Web, where younger research firms such as ComScore Inc. (SCOR:US) track everything from search engines to Web traffic to smartphone use.
Even in the Internet era, radio remains a key piece of how consumers get media and entertainment, Arbitron CEO William Kerr said in today’s statement.
“Radio reaches more than 92 percent of all American teens and adults,” Kerr said. “By combining Nielsen’s global capabilities and scale with Arbitron’s unique radio measurement and listening information, advertisers and media clients will have better insights into consumer behavior and the return on marketing investments.”
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