Reed to take control of Harcourt in £3.9bn deal

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The Independent Online

Reed Elsevier, the Anglo-Dutch media group, clinched one of the biggest publishing deals of the year yesterday with an agreed $5.7bn (£3.9bn) takeover Harcourt General, the American scientific and educational publisher.

Reed Elsevier, the Anglo-Dutch media group, clinched one of the biggest publishing deals of the year yesterday with an agreed $5.7bn (£3.9bn) takeover Harcourt General, the American scientific and educational publisher.

Reed is buying all of Harcourt for $4.5bn cash and will assume the publisher's $1.2bn. It is then selling on the group's higher education and professional services business to the Canadian group Thomson Corporation for $2.06bn.

The deal will therefore cost Reed a net $2.4bn and add Harcourt's science, medical and technical division to Reed's existing portfolio of assets which includes The Lancet and its Lexis Nexis legal information business.

Harcourt is also strong in the medical sector and has strong businesses in educational testing and school text books.

The deal is not expected to run into serious regulatory issues, though Reed may have to make some disposals in the scientific and technical sectors.

Reed has been linked with Harcourt ever since the American company put itself up for sale in June and hired Goldman Sachs to find a buyer.

The sale nets a fortune for Richard Smith, Harcourt's chairman. He and his family control 28 per cent of the shares worth $1.25bn.

Commenting on the deal, Crispin Davis, Reed's chief executive, said: "The Harcourt businesses are of outstanding quality in very attractive markets and the strategic fit is excellent."

Mr Davis added that the deal would bring cost savings of $70m over the next two years, including $25m from closing Harcourt's head office.

Harcourt enjoys good margins with the businesses Reed is buying recording operating profits of $297m last year on sales of $1.4bn. The deal proved popular in the City with Reed shares rising 46.5p to 626p.

Anthony de Larrinaga, media analyst at SG Securities, said: "It looks reasonably priced but there are not that many synergies. The question now is what they will buy next in educational publishing."

Reed and Harcourt have both agreed to a $180m break-up fee if either side pulls out of the deal.

Other bidders for Harcourt included financial buyers Thomas H.Lee Co, Bain Capital Corp and Blackstone Group. The Dutch publisher Wolters Kluwer and its US rival McGraw-Hill were also reported to have posted proposals.

Reed is funding the cash deal through $6.5bn of new bank facilities. The loan will be part financed by the issue of $1.5bn (£1.1bn) of new equity.

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