Reed calls off pounds 18bn link-up with Wolters

Reed Elsevier, the Anglo-Dutch publishing group, yesterday shocked the stock market when it called off its proposed pounds 18bn merger with Wolters Kluwer, the Dutch group after the deal ran into opposition from European competition authorities.

In a joint statement, the two companies said that "in the last few days Wolters Kluwer has made it known to Reed Elsevier that it needed to renegotiate a number of the terms of the proposed merger". This came after Wolters Kluwer concluded that the conditions set by regulators for clearing the deal would have "adverse implications for the benefits of the merger for the respective shareholders of all three companies".

A Wolters spokeswoman said that disposals required by the regulators would have threatened the company's 15 per cent annual earnings growth target.

However, the parties said no other matters had arisen in the course of the financial due diligence between the parties that would otherwise have given cause for the merger to be cancelled.

The merger, which was announced last October, was to have created the world's largest professional and scientific publishing group, with combined profits of pounds 1.2bn on sales of pounds 5bn, and with dominant positions in medical and legal publishing.

However, it had attracted vociferous opposition from consumers, who argued that the combined company's grip on certain markets would be too strong.

In recent years Reed Elsevier, which is controlled by holding companies Reed International and Elsevier, has concentrated on building up its positions in what it calls "must-have" information - scientific, legal and professional information that consumers must have access to at all costs. The company, which is led by joint chief executives Nigel Stapleton and Herman Bruggink, has also spearheaded the move into on-line publishing.

Shares in Reed International plunged 57p to 620p on the news while Elsevier shares fell 3.10 guilders at 34.50. Shares in Wolters Kluwer closed down 3.90 guilders at 303.10. Shares in the three companies had risen by between 10 and 20 per cent since the merger was announced.

Analysts said the news was a setback for Reed, but was not fatal. "It's not the end of the world. It's more a question of lost opportunity," said Louise Barton, an analyst at Henderson Crosthwaite.

The merger was not about cost cutting - the cost savings of the deal were expected to be no more than pounds 50m. Experts had expected the deal to increase both companies' growth rates into the next century.

Reed Elsevier and Wolters had described the benefits as "synergies". Users of both companies products, however, were concerned that the merger would give them the power to increase prices in some of their markets.

The European Commission had received complaints about the potential dominance of the tax and legal publication business. Legal companies currently marketing their products through Reed's Lexis-Nexis on-line database were also worried that their products would be pushed out in favour of Wolters Kluwer's offerings.

The complaints found a sympathetic hearing with the Commission, which last December said it had "serious doubts" about the proposed deal, arguing that there were "very significant overlaps between the activities of both parties in several areas [for example, in the areas of legal and tax publishing] where the position of either one or both of the parties seems already strong at the moment."

US competition authorities were also scrutinising the merger closely.

Industry experts said yesterday the prospect of being forced to sell more business than expected may have scuppered the deal. "They've had a huge number of objections and would have had to sell a large number of the businesses," said one analyst. "There was a huge hassle factor. It takes time to do these things."

Analysts said Reed was now likely to concentrate on building up its business through a series of smaller acquisitions. The company, which has brought forward the reporting of its full-year 1997 results to Thursday, has a strong balance sheet following the January sale of IPC, its consumer magazine business, to a management buyout team for pounds 950m.

Outlook, page 19

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