Reed to merge with Elsevier in pounds 5.3bn deal

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The Independent Online
REED International, the UK's largest publishing company, is to merge with the Dutch publisher Elsevier in a deal that will create the world's most profitable media group and the third largest by market capitalisation.

The pounds 5.3bn deal had been finalised early this week. Though Wednesday's events put some jitters into both sides, they decided they were so far down the line that they should announce the deal.

Peter Davis, Reed's chairman and chief executive, said all the important areas of the merger had been agreed. It merely depended on a final agreement on the pricing of the deal and approval from the two groups' shareholders. A document with the final details should be sent out to shareholders at the end of next month.

The merger will have to be approved by a host of regulatory bodies, not least the European Commission and the Federal Justice Department under US anti- trust laws. There is also a possibility of the Monopolies and Mergers Commission being asked to approve the transfer of Reed's regional newspapers, though this is remote.

Pierre Vinken, Elsevier's chairman, said the deal would allow the combined group to take advantage of publishing opportunities that might have been too ambitious for the groups individually. 'There is a class of large publishers in the world which in principle could be taken over,' he said.

The managers have drawn up a hit list of businesses they may like to buy. High on the list is the late Robert Maxwell's Official Airline Guides, which is worth more than dollars 500m (pounds 280m).

Mr Davis said the merger did not change his view that buying Mirror Group Newspapers, which Reed sold to Maxwell for a pittance in 1984, was not an option, although Elsevier owns two national newspapers in the Netherlands.

The merger comes 18 months after Elsevier sold its 8.8 per cent holding in Pearson, publisher of the Financial Times, so bringing to an end a two-year courtship. At the time Pearson said a massive rise in Elsevier's share price meant that any merger would not be good for its shareholders, though it is understood the two sides could not agree on questions of management structure.

'We were not contemplating a deal quite like this,' said Lord Blakenham, Pearson's chairman. 'However, we wish them well.'

Mr Davis said the two companies were able to come together because they had a common view of the publishing business. The initial approaches are understood to have been made by Elsevier, which has long wanted to move into English language publishing,

Provisionally, the structure of the new group will be like that of Unilever and Royal Dutch Shell, the two other Anglo-Dutch giants.

The two groups will merge all their operating companies into a new group, Reed Elsevier, which will be owned 50-50 by shareholders in Reed and Elsevier. To take account of Reed's higher market capitalisation, Reed shareholders will own an additional 11.5 per cent of Elsevier.

The two companies will equalise their dividend payouts so the shares should trade in a similar fashion.

However, the markets took a different view. Reed shares outperformed a strong UK market, rising 45p to 531p, while Elsevier's shares dropped 11.5 guilders (390p) to 105.2 guilders.

Dutch analysts expressed concern that Elsevier was being exposed to a much more cyclical business than its core of scientific publishing. 'The company is paying a premium for extra risk,' one Amsterdam-based broker said.

UK analysts were more welcoming. 'So long as Elsevier's scientific businesses can show good growth in the next couple of years, this should enhance Reed's earnings,' said Derek Terrington, media analyst at Kleinwort Benson Securities.

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