Reed Elsevier Surprises with Plan to Sell Publishing Arm

Feb.25.08 | About: RELX PLC (RELX)

Bracing for the possibility of further economic downturn and to reduce exposure to related volatility in the ad markets, Anglo Dutch media powerhouse Reed Elsevier (RUK) announced a surprise plan to sell off their publishing arm, Reed Business Information [RBI], Thursday. The group is home to a number of high profile online/offline specialty news outlets including the entertainment industry staple Variety and the publishing trade magazine Publisher’s Weekly.

The announcement was made as part of Reed’s release of 2007 earnings results. The company was careful to point out that the plan is in its early stages. No buyers are presently in play and no official strategy – be it a public spinoff, a private equity buyout, or some other form of transaction – has been determined.

CEO Sir Crispin Davis said he believes “there will be a wide and strong level of interest in this business both from strategic and private equity buyers, [The Company] is very open minded on who and when.”

With the credit markets still under pressure, it could take some time to put a deal together if debt is involved. Reed is not concerned about timing.

Based on 2007 results, about 60% of RBI revenue came from advertising. The division had an adjusted operating profit of £260m. In an outright sale, it could fetch a price in the range of £1b to £1.5b Euros (about $2b to $3.0b depending on the conversion rate).

The sale, if and when it happens, should have little impact on daily operations (online or off) at the major publications though post transaction layoffs could be possible, depending on the buyer.

The bigger subtext to the sell off is the story it tells about the ongoing challenges facing a changing media industry; specifically how publishers, and other traditional media sellers, are adapting to the challenges of straddling the divide between growing online channels and often flat, slow growing offline outlets (or in this case, choosing to sell rather than deal with adaptation at all).

Looking at RBI from a distance, RBI is a company that operates more than 130 trade publications. Many target relatively small niche markets that see only modest year over year growth. Even Variety, one of the flagships, isn’t really a mainstream publication that reaches out aggressively to new audiences. The Hollywood trade publication has been in print since 1905 and competing with Hollywood Reporter for at least 2/3rds of its life. Today the paper has about 61,000 print subscribers who pay about $300/yr. About 2m unique visitors hit the website a month.

Staying cost efficient and remaining both timely and poignant in each of the niche markets Reed’s publications cover, particularly in the face of the depth of information available online, is a challenge.

By divesting their business information products, they can apply their focus to higher growth, higher margin subscription businesses and leave the challenges of advertising driven products to the care of some new ownership.

Reed’s Exhibition group, while part of the Business Unit being sold, will not be included in the sale. Science/Medical and Legal divisions which operate as independent divisions are also not involved.