GUS tries to buy, ABI sues, privacy advocates gripe
In a move that would strengthen Experian's position within the direct marketing business, Experian's parent company, U.K.-based Great Universal Stores plc, has inked an acquisition agreement with Metromail Corp., Lombard, IL. The deal is valued at more than $800 million, including a breakup fee and debt.
But the deal has come under fire from both the privacy lobby and another Metromail suitor.
American Business Information, Omaha, NE, which holds 1 million shares of Metromail stock, filed a shareholder lawsuit March 17 to halt the merger. ABI, which had made purchase overtures of its own for a reported $850 million, alleges in its complaint that certain Metromail officers accepted GUS' offer, which was lower than ABI's, in part, because of "millions of dollars in improper payments to Metromail insiders."
Included among the "insider defendants" are CEO Barton L. Faber, counsel Thomas J. Quarles and CFO Ronald G. Eidell.
ABI alleges that the defendants received tens of thousands of stock options in February, and that they entered into "lucrative 'change of control' agreements" totaling millions of dollars, to be triggered by the GUS deal.
Metromail denies the allegations.
"We dispute those charges," says spokesperson Julie Springer. "Metromail's board of directors has acted appropriately at all times."
Springer also denies that there was anything funny about stock option grants to Metromail employees.
"There was a stock option grant in February 1998, issued by our human resources committee," she reports. "It was a pretty broad-based option, with 373 employees receiving it - nothing unusual about that."
Springer adds, "We did it the year before, and the year before that issued at the price the stock was trading on that day."
ABI seeks to forbid the companies from proceeding with the merger agreement and to require Metromail to conduct a fair auction for its sale. ABI increased the size of its offer to $33 per share on March 18th, the day it filed the suit.
Referring to the GUS tender offer as "a show stopper," ABI says in its complaint that the "price to be paid to Metromail shareholders falls materially below what ABI previously had told Metromail that ABI would pay."
How is such an offer from ABI possible, when its holdings are significantly smaller than the purchase prices being bandied about? ABI has "a major bank that is fully committed" to financing the deal, an ABI spokesperson says. Reports indicate that the bank is First Union.
But ABI is not the only party with an interest in derailing the merger.
"I can't think of a more unholy alliance for privacy," says Robert Ellis Smith, publisher of Providence, RI-based Privacy Journal.
"It would be a combination of credit information and target marketing information that has been fairly well segregated in the past."
The natural tendency, he feels, is for information to be exchanged within a corporate family.
Smith also fears the ownership of American data by a European company. While he acknowledges that there are more protections on general data, he notes that there is no European analog to the Fair Credit Reporting Act.
Both Metromail and Experian are founding members of the Individual Reference Services Group, which has developed self-regulatory principals in conjunction with the Federal Trade Commission.
IRSG members have pledged to be in compliance with the principles within 12 months. Yearly audits, by an independent auditor or assurance organization, will follow the initial compliance period.
As for the European privacy concern, Springer notes that the U.K. is governed by the Data Protection Act, which "closely mirrors the Direct Marketing Association's guidelines."
"Experian developed good practices based on thoughtful fair information values and embedded those practices as standard operating procedures," said Experian CEO D. Van Skilling in remarks to employees.
"Having learned that doing the right thing well is good business, we will ensure that all business conducted under the Experian name is done at the same high standard," Skilling continued.
Meanwhile, competitors of Metromall and Experian are assessing the damage to their own interests should the merger go through. Dave Paulus, vice president, sales for Chicago-based PerformanceData (formerly Trans Union), notes the "amount of marketing resources they have - a huge sales force with many channels."
GUS acknowledges that it would create a behemoth. "The acquisition unites two complementary businesses bringing economies of scale," says GUS financial director David Tyler. "They specialize in different market sectors. We will be able to offer comprehensive one-stop shopping to our customers. Metromail has an effective direct mail production facility."
Further consolidation of the industry is likely, concedes Acxiom chairman of the board Charles D. Morgan. "This industry is just like many others; consolidation as it becomes more mature occurs."
"We have a fairly long-term contract with Metromail," Morgan continues. "It's a multiyear contract that will be in effect for at least two years from now."
As for PerformanceData, also a major data provider, "We are actively looking for interesting data sources," says vice president/general manager Jan Davis. "We are looking at adding investor data, either through alliances or acquisitions."
GUS Gussies Up: Industry Shrinks
Some recent acquisitions by Great Universal Stores
1998 Metromail Corp., a marketing consumer information provider
1997 Serious Business Software (acquired by Experian's Direct Tech subsidiary.) The acquisition gives Experian data on 30 million small and home offices
1997 Direct Marketing Technology (Direct Tech). Direct Tech expands Experian's list processing and customer database management capabilities
1996 Experian, a consumer and business credit and direct marketing information provider
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