Reed Elsevier combines with Dutch rival to form pounds 19bn publisher

Reed International, the UK publishing group which merged with Elsevier of Holland in 1993, is conducting another mega-merger that will make it an even greater force in markets such as legal publishing and on-line information.

Nigel Cope, City Correspondent, reports on a market where size is becoming increasingly important.

Reed-Elsevier is combining with Dutch rival Wolters Kluwer to form a group valued at pounds 19.4bn. Reed's chairman, Nigel Stapleton, said the new company, Elsevier Wolters Kluwer, would be the world's largest professional and scientific publishing group.

Though the deal will yield pounds 50m of annual cost savings after the first three years, Mr Stapleton denied that cost-cutting was the rationale for the merger. "This is about new technology and the need for scale. This is not a merger driven by cost-reduction," he said

Mr Stapleton added that the combined group would continue to invest in the development of electronic material such as on-line information and CD-Rom products.

Analysts welcomed the deal, saying that in addition to the cost-savings, the product ranges of the two groups were complementary and it would eliminate a major competitor from the market.

Reed International's shares soared 97p to 629p, making them the day's best-performing blue-chip.

Louise Bardon of Henderson Crosthwaite said: "The businesses are complementary and it is a case of one plus one equals three. It eliminates a competitor in the law and tax sector and provides opportunities for creating new business."

She added: "The market is changing rapidly and becoming more concentrated on who can provide the content. This will give them more clout."

Anthony de Larrinaga of Panmure Gordon said: "This increases the pressure on the smaller scientific and legal publishers. Those who don't have the breadth and width of content will struggle."

The deal will need to be cleared by the European and US competition authorities but Mr Stapleton said he hoped to get clearance in early 1998.

The new company will have combined revenues of pounds 5bn and pro-forma profits of pounds 1.2bn. It will have a combined staff of 42,000 worldwide. It will retain headquarters in the UK and Holland. The UK and Dutch businesses will both have identical board of 10 executive directors. Cornelius Brakel of Wolters Kluwer will be chief executive with Mr Stapleton and Herman Bruggink of Elsevier as deputies. Mr Stapleton admitted such a large board would be a little unwieldy but said that was not necessarily a barrier to value creation.

Under the terms of the merger Reed, Elsevier and Wolters shareholders will control 38.2 per cent, 34.2 per cent and 27.5 per cent of the enlarged company respectively.

Analysts said the deal did not necessarily make it more likely that Reed will sell its IPC consumer magazines division, which includes titles such as TV Times, Marie Claire and Loaded. Mr De Larrinaga said Reed would need to raise pounds 1bn for the division to make it earnings-neutral. "Why sell? Some are still market leaders and the company doesn't need the cash flow."