Reed merger fees cost pounds 41m: Success payments made despite an agreed Elsevier deal

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The Independent Online
LAWYERS, accountants and merchant bankers received pounds 41m in fees for advising the publishers Reed International and Elsevier on the agreed merger of their operating businesses last year.

The money went to Warburg, Price Waterhouse and Freshfields, which advised Reed; and to Swiss Bank Corp, Coopers & Lybrand and Linklaters & Paines, which advised Elsevier.

Nigel Stapleton, finance director of Reed, defended the fees: 'It was a hell of a big merger. We had lawyers and accountants working not just in the UK and Netherlands, but in 27 other countries in which we do business.'

About pounds 16m went to Warburg and SBC, which were on success-related fees despite the agreed nature of the deal. The remaining pounds 25m was for the legal and accounting advice, which was priced at an hourly rate.

Mr Stapleton, while insisting Reed got value for money, added: 'I must say one has misgivings about the general concept of success fees.'

The merger, which created a global media business worth about pounds 7bn from 1 January, was almost derailed when sterling fell out of the exchange rate mechanism, forcing a renegotiation of the terms.

The pounds 41m figure, which was disclosed as an exceptional item, is in the pro-forma 1992 accounts for Reed Elsevier, announced yesterday.

Andrew Blackman, assistant editor of Acquisitions Monthly, commented: 'It sounds a lot of money, but it is less than the pounds 35m of fees paid by each side in the pounds 4.5bn merger of Beecham with SmithKline.'

Reed, which also published nine- month figures to 31 December, counted its share of the fees, pounds 22.4m, as an extraordinary item. The practice is shortly to be outlawed under new FRS3 accounting rules.

The treatment enabled Reed to report pre-tax profits of pounds 137.1m, up 10 per cent, and to beat by pounds 4m the 12- month forecast it made when announcing the merger. Under the new rules it would have been forced to report a decline in pre-tax profits.

Mr Stapleton, who sits on the Financial Reporting Review Panel, the accountancy watchdog, explained that the merger document, which contained the Reed profit forecast, came out before FRS3 was formally published.

Reed said the merger had started well and proposed a final dividend of 7.25p, making a nine-month total of 12.75p, up 6 per cent pro-rata.

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