Legal News and Views -  Asia Pacific and Beyond

The Financial Times reported yesterday that Reed  " has no plans to sell any of the divisions within its portfolio this year, people close to the company said."

Here's the story

http://www.ft.com/cms/s/0/fe398a32-4772-11e1-b646-00144feabdc0.html#axzz1kdzgArYn

All the gossip has obviously forced them into a corner - we'd suggest it's not just "media" reports that are making them think about the issue . If the subject is this public shareholders and the board must be in dispute over the issue

Reed Elsevier dismisses break-up calls

Calls for a break-up of Reed Elsevier have fallen on deaf ears as the Anglo-Dutch publisher has no plans to sell any of the divisions within its portfolio this year, people close to the company said.

Management intends to pursue only small-scale merger and acquisition activity within its five divisions over the next 12 months, according to two people familiar with the company’s plans, and has no plans to sell its Lexis-Nexis Legal & Professional business despite calls for its divestiture. Reed declined to comment.

“Breaking up the company could release significant value,” said Claudio Aspesi at Bernstein Research, echoing calls from Alex DeGroote at Panmure Gordon whose last Reed research note was entitled “Dust off the break-up models”.
Market interest in Reed’s group structure has been reignited by the welcome response to the break-up of the US business-to-business publisher McGraw-Hill.

The US media conglomerate announced in September it was splitting in two following pressure to accelerate growth and improve returns to investors.
Reed’s shares have underperformed the FTSE All-Share Media index by 3.9 per cent in the past 12 months. The company is trading on 11.7 times forward earnings, far behind its 14.7 average over the past decade.

“There is a need for reassurance that there is upside to the stock,” said one media analyst.

Lexis-Nexis has been singled out as a likely business for Reed to sell. Its competitive positioning has become a concern for investors amid claims that the division has suffered from under-investment as well as the continued weakness in the US legal publishing market.

Lexis-Nexis is number two in a duopoly in the US after Thomson Reuters Westlaw. But the business, which returned to growth in the first half of 2011, saw a shift in the competitive landscape last summer when Bloomberg bought BNA, the legal and tax information group for $990m, marking the private company’s largest ever deal.


Reed Business Information, which publishes the entertainment magazine Variety, has shrunk in size since Reed Elsevier Group failed to sell the division four years ago, writes Salamander Davoudi .

The group has divested many of RBI’s more advertising-dependent magazines including all the controlled circulation titles in the US.

The rump of the business, which accounts for 7 per cent of group operating profit, includes a data services business, some premium print brands such as New Scientist but also some less attractive advertising-based print businesses.

“I don’t think there are any natural buyers for the whole of RBI. It is the individual assets within the group that are attractive,” said Claudio Aspesi, analyst at Bernstein Research.

“Historically one would have looked at private equity at the most obvious buyer due to the predictable cash flows.”

The RBI sale was withdrawn in 2008 after indications of interest nosedived from £1.3bn to £650m amid a weakening economy and a deteriorating outlook for the division.

Negotiations with interested parties, ranging from private equity firms Bain Capital to Apollo, are understood to have come unstuck over the deal’s debt-to-equity balance as well as on price.

Reed had originally offered $330m in vendor financing as well as $1.2bn in staple financing to sweeten the deal. Staple financing is a pre-arranged debt package offered to potential bidders.

RBI’s sales fell 8 per cent in the six months to June 2011 but operating profits jumped 32 per cent on the back of the restructuring.
“We remain wary of how Legal will be squeezed between market leader Westlaw and challenger Bloomberg, which recently bought BNA,” said Lorna Tilbian, analyst at Numis.

Morgan Stanley has identified Lexis-Nexis as the “key business for management to address” and has said in a research note that if Reed is to retain the business it needs to “explain the market positioning much more fully than it has done in the last couple of years”.

Analysts continue to bemoan the lack of transparency around Reed and express frustration that almost 30 months into chief executive Erik Engstrom’s tenure there has been little clarity on the direction the company is taking.

Anthony Habgood, Reed’s chairman, had a “good reputation for disposals” of non-core assets in previous roles, according to Patrick Wellington, an analyst at Morgan Stanley.

“As yet, little of this has been seen at Reed and the market remains uncertain of the ultimate planned shape of the group and what management thinks are achievable targets for organic revenue growth, margins earnings growth and returns,” he said in a research note.

Reed Business Information, which publishes Farmers Weekly and NewScientist, has also been mooted as a possible sell. The group failed to dispose of the business in 2008 but has since restructured it.
Bernstein Research has estimated that disposing of Lexis-Nexis and Reed Business Information would add between £1.4bn to £2.3bn to Reed’s combined market capitalisation of £12bn from it dual listing in the UK and the Netherlands.

But not all analysts agree that Reed should sell large assets this year. “Reed has invested heavily into Lexis-Nexis and I am not sure they want to cut their losses now unless they could get a really good price. I can understand why they would not want to sell,” said Paul Richards, analyst at Numis.
“There are synergies across the divisions,” he said. “Reed’s communication [with the market] is improving.”

Last year the FTSE 100 company came under heavy fire for its lack of communication with investors. Reed responded by running two investor days and appointed a new head of investor relations.

The announcement last October that long-serving finance director Mark Armour is to depart by the end of this year amid investor desire for fresh direction was read as a signal that change is afoot.

The search process, being run by Spencer Stuart, should conclude before the year-end and a replacement is expected to start before then.