The Investment Column: Maid deal has compelling logic
Friday 03 October 1997
The deal is audacious, but investors should be reassured that key staff, like Jeff Galt, KRI's president, who is joining as Mr Wagner's number two, will provide some continuity and useful customer support skills. The price is also right. Maid could have paid pounds 350m without causing a shareholder revolt.
Most important, though, is the deal's compelling industrial logic. First bigger is better in the online information world, and the enlarged company, to be named The Dialog Corporation, will outstrip Reed International's prestigious Lexis-Nexis brand to take a quarter share of the world market. Size is everything in wrangles over content with media giants. Reuters recently withdrew the news service it provided to Maid, illustrating the risks of being a weedy player.
Second KRI provides Maid with much-needed quality content and branding. KRI has the largest general reference service in the US, and Europe's largest archival service. Mr Wagner, who prides himself on his tough negotiating tactics, has also sealed a five-year contract with Knight- Ridder Newspapers, KRI's parent, as part of the deal, giving Dialog access to 27 US daily newspapers.
First-class information will complement Maid's user-friendly search technology, InfoSort, enabling Dialog to target the growing "end-user" market, that is, ordinary individuals who want to access information online.
The deal, to be funded by a combined pounds 118m placing, junk-bond issue, and debt, is expected to be earnings-enhancing in 1998. Maid is hopeful of making cost-savings of around $35m a year in the first year. Many of KRI's 34 offices will be absorbed by Maid's, although the reorganisation will cost $10m.
Merrill Lynch had Maid trading on a sky-high 37 times forward earnings, but the broker is tentatively pencilling a better value 14 times for the newly merged company. The shares, suspended yesterday, start trading as Dialog next month. Merrill reckons they will debut at around 220p, but they look set to leap soon afterwards. Buy when you can.
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