What's up at the world's largest trade publisher?

Folio: The Magazine for Magazine Management, Nov 1, 1992 by Keith J. Kelly

With its planned merger, Reed Elsevier becomes the 800-pound gorilla of global business media.

With the announcement September 17 that the London-based Reed International Plc. and the Amsterdam-based Elsevier N.V. were going to merge, the world's largest trade publisher took shape, at least on paper.

If the merger goes through as planned on January 1, the new company, under the leadership of Elsevier chief Pierre Vinken, will have combined revenues of about $4.3 billion. What will Reed Elsevier do with all that clout? Two paragraphs in the merger announcement hint at the direction the international media giant intends to follow, a strategy that has the potential to reshape the world of business-to-business publishing.

In a joint announcement, Reed and Elsevier state that their joint operation "believe(s) that the publishing industry over the next decade will be characterized by the continuing development of electronic and optical forms of storage and transfer of information. Advanced communication systems will accelerate the integration of text, images and sound. Research and experimentation will be required before these technologies can be applied commercially."

The statement also points to the "increasing use of CD-ROM, database management and networking, both internally and with customers." It may provide a clue as well as to the type of companies that will be in Reed Elsevier's sights as acquisition targets after the merger deal is official.

Certainly, Reed Elsevier seems intent on making acquisitions in the field of conventional magazines, especially in the United States, since the depressed value of the dollar makes U.S. investments a good deal for European buyers. Elsevier board member Paul Vlek, in an exclusive interview with FOLIO:, said that "an acquisition of $1 billion would be no problem. We want to grow in professional publishing markets and business information markets."

Reed's current U.S. holdings include Cahners Publishing Co., Reed Exhibitions Companies and the Reed Travel Group. In spite of several years of rumors about acquisitions in the consumer magazine field, Cahners still owns few consumer titles other than Modern Bride and American Baby. In the United Kingdom, however, Reed lays claim to the honor of being number-one in consumer magazines, with mass-circulation titles that include TV Times, Woman's Own and Country Life.

Elsevier owns Springhouse Corp., Gordon Publications, Delta Communications, Gorman Publishing and Excerpta Medica, a group which is well positioned for the kind of alternative-media information products the new company is seeking to develop. Core Publishing, a subsidiary of Excerpta Medica, owns Drug Therapy, The Female Patient and Pain Management. Combine those with Cahners titles like American Journal of Medicine, and Emergency Medicine and the potential for a comprehensive database of medical information is obvious. In what form that database will ultimately be realized, CD-ROM, online computer reference, information-on-demand service or a combination of these options, remains to be seen. But the media-giant-to-be has made its electronic ambitions clear.

Of course, with companies this large, not every property creates perfect synergy: Some are bound to be redundant. Reed owns Packaging, which goes head-to-head with Packaging Digest, at Elsevier's Delta Communications subsidiary. Both are based in the Chicago area. Elsevier owns Material Handling Product News, while Cahners has Modern Materials Handling.

Merger heats up the market

Reed Elsevier's statement of direction immediately triggered excitement among other European buyers who don't want to be cut out of the U.S. market. One behind-the-scenes deal-maker told FOLIO:, "I had a meeting with a European client whose parent company had essentially told him, 'Look hard, find something and we'll buy it.'"

Said our source, "The perception is that if these big, smart international giants are getting active, then |other European publishers~ want to beat Reed Elsevier into the market."

The Reed Elsevier merger may be setting the stage for some frenzied negotiations over the next few months. Notes Edward Atorino, a stock analyst at Salomon Brothers: "A lot of Wall Street investment types are going to be dusting off their portfolios and kicking the sand out of their shoes because of the news from overseas |about the pending Reed Elsevier~ merger."

Another motive, surmises one Boston-based financial expert, may be that, "The likelihood of true European unification looks a lot more obscure now than it did a few years ago. So the companies with cash may be less willing to invest there."

Eileen Burke, a vice president at Chemical Venture Group, says that it is "likely" that smaller publicly traded companies--in the lower tiers of the Fortune 1000--might come into Reed Elsevier's sights. Privately held companies, especially those with equity partners, might be on the list as well, she indicates.

Yet there are few industry observers who expect the kind of bidding that saw Paris-based Hachette pay $712 million to acquire Diamandis Communications in June 1988, or Australian Rupert Murdoch pay $3 billion for TV Guide, Seventeen and The Daily Racing Form in October that same year. "The Europeans have become battle-scarred in some magazine of these deals, and as a result, they've become a little smarter," says James Dolan, an investment adviser with the New York City-based Jordan Edmiston Group.