Reed's science division boosted by $320m deal

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The Independent Online
Reed accelerated its move into electronic publishing yesterday with a $320m public offer for MDL Information Systems, a California-based supplier of scientific information management systems.

The recommended deal, which will boost Reed's most profitable division, scientific journals, and goes some way to using up the company's estimated pounds 1bn cash pile, is expected to defuse speculation that Reed might be the object of a hostile bid from Reuters.

MDL's software systems, databases and services help customers in the chemical, pharmaceutical and biotechnology industries to manage, analyse and communicate high volumes of research and development material. The company made a pre-tax profit of $11m in the year to March 1996 on revenues of $62m.

Science publishing is Reed Elsevier's most lucrative business, generating pre-tax profits of pounds 231m, a profit margin of 41.8 per cent. Elsevier Science publishes more than 1,200 scientific journals and plans to start delivering them through an on-line database connection this year.

Reed Elsevier's co-chairman, Herman Bruggink, said MDL's products enhanced the productivity and speed of scientific research and were a good strategic fit with Elsevier Science. "There are considerable opportunities, particularly in an on-line environment, to add further value to the customers of both MDL and Elsevier Science through the electronic linkage of data," he said.

Shares in Reed fell 19.5p to 1084p as the market played down expectations that Reuters might be stalking Reed, where a move away from consumer publishing towards professional and scientific titles has helped profits move steadily ahead. Earlier this month, Reed announced a 10 per cent improvement in profits to pounds 806m.

At the time of the results announcement, co-chairman Nigel Stapleton said Reed could swallow an acquisition of more than pounds 1bn. Last year he warned that Reed was prepared to sacrifice strong earnings and margin growth to aggressively pursue acquisitions in electronic publishing.

Analysts welcomed the purchase, saying MDL would mesh well with Elsevier's science publishing business and give an extra push to its plans for electronic distribution.

"In terms of multiples of sales and profits the price is pretty substantial but I think the synergy advantages will justify that," one said.

The exit price/earnings multiple of 32 is considered high for a publishing company but a reasonable rating for a takeover in the information technology sector.

It is thought the continuing outflow of cash on acquisitions might act as a catalyst for Reed to put what remains of its consumer book publishing operations on sale.

The division was withdrawn from sale two years ago after it failed to attract high enough bids but Mr Stapleton said earlier this month that it was confident the operation would soon be attractive enough to sell again.