Reed Travel outlines rebate plan

Folio: The Magazine for Magazine Management, March 1, 1998 by Neil Cassidy

Reed Elsevier Business Information president and CEO Bruce Barnet maintains that no individuals are being faulted for the circulation overstatements at its Reed Travel Group, which will cost the company some $325 million in refunds and has led to a months-long, companywide probe. On January 20, Barnet announced not only the specifics of the refund arrangement but also that Reed plans to restructure the Secaucus, New Jersey-based travel group, moving several publications from that umbrella to the 120-title roster of Reed Elsevier Business information titles.

Reed Travel Group CEO Kathy Misunas -- who last August was quoted in published reports as saying Reed Travel was "on track" -- is now out. But Barnet says the loss of her position is a casualty of the restructuring and should not be construed as punishment for the overstatements. The inflated circulation figures for RTG's hotel and travel directories, uncovered last September, were presented to advertisers for five years, from 1991 to 1996. Barnet says the highest priority for the travel division right now is "taking care of advertisers as soon as possible, and that's well under way." The rebates cover publications such as the Hotel & Travel Index, OAG Pocket Flight Guides and Official Meetings and Facilities.

As part of the restructuring, the travel directories will become part of Reed Elsevier Business Information, based in Newton, Massachusetts, while the international airline books -- such as the OAG Pocket Flight Guides and OAG. Air Cargo Guides -- will transfer to Dunstable, U.K.-based Reed Business Information. The main U.S. operation will stay in Oak Brook, Illinois.

Besides Misunas, the company isn't saying who among RTG's 2,500 employees in 50 offices worldwide will be let go as a result. And Barnet insists that personnel and cost-cutting aren't the thrust behind the current revamping. Reed Elsevier's position is that the travel group's operations are being aligned with existing divisions that have better infrastructure and publishing know-how. At press time, Barnet planned to travel to Secaucus on February 3 to address employees there about how the coming changes would be implemented.

Barnet says that despite the restructuring and the enormous rebate tab, there is a "misconception" that Reed Travel is hemorrhaging capital. "There was a decline in profits for some of the titles, but it's certainly not losing money," he says. For the first half of 1997, profits at the travel group declined 21 percent, while revenues sagged 6 percent. (See "Reed sees travel profits plummet," Folio:, October 1, 1997, page 13).

Then, in late September, the company discovered what it called "irregularities" in the circulation statements offered to advertisers, most commonly hotel chains and airlines. Within days of discovering the overstatements, Reed assembled an investigative team consisting of the U.K. law firm Freshfields, and U.S. legal firm Davis Polk & Wardwell, along with independent accounting company Arthur Andersen and the Audit Bureau of Circulations.

Reed Travel, which represents about 7 percent of Reed Elsevier's total revenue, took in some $807 million in ad revenue during the five-year period; the rebate offer represents about 40 percent of that revenue. In addition to the give-back, Reed Elsevier plans to take a substantial non-cash write-down in RTG intangibles, which the company estimated at the end of 1996 to be worth about $830 million. Financial statements for 1997 are due out in mid-March. Parent company Reed Elsevier is still awaiting U.S. and E.U. regulatory approval of its proposed merger with Wolters Kluwer, expected to take place this spring.