Valuations for media publisher Reed Business Information have fallen substantially amid the economic downturn and threaten to derail a sale by Reed Elsevier, its Anglo-Dutch parent.

Third-round bidders are considering offers below £1bn ($1.63bn), against RBI’s initial valuation of about £1.25bn.

“Just how much below £1bn remains to be seen,” said one person involved in the deal. “Reed Elsevier won’t sell at any price but buyers can’t ignore what they are hearing and seeing in the marketplace.”

The deal’s financing is now in place but the sticking point is the deterioration in trading at RBI into 2009 as the economy weakens. Reed would not comment on a lowest acceptable price.

One analyst said: “I think it is worth Reed’s while to sell low. If RBI went for £750m rather than £1bn, all they lose is £250m of cash. While it is helpful to have that on the balance sheet, at the end of the day it is only £10m of extra interest.

“The alternative is that …the market automatically values RBI in the sum of parts at £750m-£800m anyway and you get left with a cyclical business that will see downgrades and will be under pressure for a couple of years.”

Aside from the pressure to sell on the back of possible downgrades, Sir Crispin Davis, the outgoing chief executive, considers the sale to be part of his legacy.

Reed bought ChoicePoint, a provider of services to the insurance industry, this year for $4.1bn. The acquisition was financed by short-term bank facilities. Reed needs to repay $2bn (£1.2bn) of ChoicePoint acquisition financing in March 2010, with the remaining $2.2bn a year later. Reed’s $3bn committed back-up bank lines expire in May 2010.

Fitch Ratings on Wednesday cut Reed’s outlook from stable to negative. It expected Reed to repay the ChoicePoint debt partly through proceeds from RBI and partly through debt issuance. “In the event that RBI is not sold, no longer-term debt can be issued, and Reed’s bank lines cannot be extended, this could see a liquidity gap in 2010, though in such a scenario Fitch would still expect Reed to be able to fund the repayment out of pre-dividend free cashflow,” the agency said.

Fitch said that if the situation was not addressed by early summer next year the company’s ratings could be downgraded.

The three bidders in the third round are Bain Capital, TPG and Strauss Zelnick, the former non-executive director of Reed Elsevier.

“The main issue is down to the remaining due diligence on trading as we go into 2009 in the weakening economic environment,” said one person familiar with the deal.

Reed Elsevier shares fell 18½p to 518p.

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