According to the Financial Times, bidders in the auction for the Reed Business Information unit that contains some 135 publications including Variety, Publisher’s Weekly, and Video Business “are re-examining their calculations” in light of a shortfall in the staple financing that Reed had arranged to make the acquisition attractive to private equity groups.  “Staple financing” refers to a pre-arranged financing package offered to potential bidders during an acquisition/auction.  In this case Reed Elsevier had put together a $1.26 billion package to make the acquisition of the RBI unit, which is expected to sell for about $1.9 billion, attractive to private equity firms such as Bain Capital.

According to the Financial Times turmoil in the credit markets has led one of the seven banks in a consortium put together by Reed (and its lead bank UBS) to renege on its pledge of credit, an action which created a shortfall of between 10 and 15% of the staple financing package, a gap that could amount to as much as $180 million. 

The sale of the RBI unit is one of the few major deals in play in the media sector, which has been hit hard by a downturn in advertising.  In spite of the established nature of the publications in the RBI unit and their solid performances so far this year, it has been very difficult to arrange the financing in today’s tight credit market.  One anonymous source close to the deal told the Financial Times “The road to the staple (financing) has been torturous.”

In February of 2008, after purchasing risk management information provider Check Point for $4.1 billion, Reed Elsevier decided to sell off the RBI unit minus the high growth Reed Exhibitions trade show management unit (see “Reed Ankles Print Media”).  As late as July Reuters reported that bids on the RBI media unit were expected to be in the $2-$2.5 billion range, but that was before the full impact of the credit squeeze and economic downturn.