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Friday, February 22, 2008

Reed - but not in print!

Many are suprised that Reed Elsevier has annnounced the disposal of Reed Business Information. As a reader of this blog you should not have been. We predicted last year that there would be a series of business media disposals as the full horror of the shift in user and advertiser behaviour begins to manifest in revenues and profits.

This is a big deal though. RBI was created from many small trade publishers aquired in the late sixties and seventies. Originally the almalgam was the trade arm of IPC and for many years, until the early eighties traded as IPC Business Press.

In recent years RBI has tried to reinvent itself. Its blue chip magazine brands are not the power titles they once were. Paid circulations have collapsed, recruitment advertsing as vanished online and now display advertisers are also beginning to migrate to the web. The RBI management invented Totaljobs, whose revenue grew 35% last year, and have made a good fist of building what they call "community" websites. Never the less 60% of the RBI revenues are ad based on this fits uncomfortably with the Reed Elsevier digitial subs model so Crispin Davies wants to excise the cycle. Of course the thing about business cycles is that they go up as well as down. Timing is everything. Reeds subs based enterprises are never likely to enjoy 35% growth! This reaffirms Reeds desire to be the most boring media company on the planet. Also expect many more years of pretty dull share price perfromance but solid and dependable dividends.

Curiously the Reed desire for strategic purity does not stretch to the disposal of Reed Exhibitions. Although there is no online revenue and the revenue is all from marketing budgets, Davies has judged that the cash flow benefits of being the worlds largest trade show organiser are just too good to give up on.

For the folk at RBI an extended period of uncertainty looms. There will be no rush to do this deal. Indeed as Davies himself admits, the current credit shortage may make this £1b deal tough hurdle for private equity in particular. He will be patient. This is no fire sale.
What the employees can be certain of is that any new owner will be looking for cost savings. There is at least £10-15m of quick costs to come out based on my back of envelope calculations, and as print ads - 60% of RBI revenue, continue to decline the pain will go on for a long while.
We will come back to this in coming months, but for prospective buyers valuation will be tough. What are magazines "in long term slow decline" as the Reed statement puts it, really worth? How will a buyer view the generous employement contracts, the fantastic (if you work there) pension scheme, and the expensive (in rental terms) properties.

Is the value in RBI is break up? Totaljobs will have a very differerent valuation profile to Farmers Weekly.

Business media could not be at a more interesting juncture.

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