Bottom Line: Reed caught in a cleft

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The Independent Online
IT really is about time Reed realised that big is not always better. There was something distinctly 1980s-ish about Ian Irvine's observation yesterday that the merger with Elsevier was driven, not by synergies between the businesses, but by the desire to be 'more global, and have more financial fire power'.

Reed's new co-chairman appears determined to continue down the predatory path mapped out by his predecessor, Peter Davis, who was untimely ripped from the chairman's berth in June.

But Mr Davis was a smooth operator who knew a nifty deal when he saw one. Neither of the two pricey acquisitions Reed is examining in the US, Ziff Communications and Mead Data Central, appears to offer much in the way of potential cost savings.

Yet Reed is between a rock and a hard place given its fancy stock market rating. Without acquisitions its growth prospects look dull. While the group's cost-cutting record is impressive, it is difficult to see much significant scope for further slimming the existing business.

However, organic growth - up an underlying 12 per cent - is scarcely exciting, especially when compared with the likes of its innovative publishing rival, Emap.

That leaves growth prospects reliant on the vagaries of the economies of the US and Continental Europe.

But even relatively optimistic numbers show earnings growth of only 15 per cent next year and this is insufficient to justify a 35 per cent premium to the market rating.

The proposed New York listings may provide some support. And in the long term Reed has some extremely solid and attractive publishing properties. But its post-merger strategy and management is untested and there will be better moments to buy its shares, which closed down 22p at 806p.