Outlook: Deal makes Reed a powerful force

on the spate of takeovers, Bernard Arnault and niche publishers
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The Independent Online
Learned tomes such as Tolley's Income Tax and the Martindale-Hubbell Law Directory may sound as dull as ditch water and to the average man on the street they almost certainly are. But to experts who need to keep abreast of developments in these fields, they are vital. Publishers of this kind of material in the printed, and increasingly on-line, form can make a killing.

Reed Elsevier is already a powerful player in these markets. Its professional and scientific divisions, which include the Tolley and Butterworth imprints, have margins to die for and yesterday's near-pounds 20bn tie-up with Wolters Kluwer of Holland will make the enlarged group an even more dominant force.

For once it seems true that here is a deal that is genuinely not about cost-cutting. The tongue-twistingly named Elsevier Wolters Kluwer says the merger will yield pounds 50m of savings a year after year three - which is just over 1 per cent of the combined group's cost base. That's not much. The enlarged group keeps headquarters in both Britain and Holland and just about everyone keeps there jobs in this one - in the boardroom at any rate.

If no significant cost cuts, why do it? The intention is to build up dominant content and then push it through a variety of formats such as print, CD-Roms and the Lexis-Nexis database. Judging by Reed's share price yesterday - up 18 per cent - the City generally buys the idea of a powerful combination increasingly able to put the squeeze on smaller rivals. Analysts are also impressed by the willingness of Wolters Kluwer to take on Reed so soon after the recent circulation-overstatement fiasco at Reed's travel subsidiary.

Business and professional information is a market that is rapidly consolidating - witness the recent Maid deal with Knight-Ridder. Reed's surprise move has increased the pressure on other players, so more deals seem inevitable. It may also force the long-expected sale by Reed of its IPC consumer magazines division. However, with analysts saying Reed would need to raise pounds 1bn from the sale just to achieve earnings neutrality, perhaps we should not be holding our breath.

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