Thursday, February 15, 2007

Reed Elsevier Selling Harcourt Education

Perhaps on reflection this is no surprise as the results at Education had been lagging for sometime. The motivation to sell is similar to that expressed by Thomson Learning in that online and electronic revenues are growing faster and opportunities there are greater than they are in education. Reed Elsevier has significant online revenue at Elsevier (Journals), Lexis Nexis and in Legal & Regulatory (Martindale).

During his analyst presentation Sir Crispin Davis said that Harcourt increasingly differs from the core RE business units in market growth expectations and revenue model and that the opportunities for electronic and online revenues are "less clear". This also comes in the context of a 20% drop in operating profit for the unit.

For the year RE Group revenues were up 6% with 5% from organic growth and operating profit (despite the 20% drop for Harcourt) was up 9% for the 12mths. Here is the analyst presentation. Here is their summary press release.

Davis went on to say that the divestiture would probably occur in the second half of 2007 and that the proceeds would be divested to shareholders. The unit would be expected to sell for over £1.0billion however, the market for large educational assets is a little glutted right now.

Importantly, Harcourt is focused on k-12 so revenues are focused and RE expects some key adoptions during 2007 - for which they have invested pre-pub expense - and if those are won then the company will be more attractive (obviously). They may have some advantage but we will see. Private equity has to be the prime candidate for acquisition.

Here is a Times article.
Here is a local Oxford Mirror article

Interestingly, I can't help thinking that because Thomson and Elsevier compete aggressively in certain areas that RE do not want to loose out if Thomson take their Education Divesture dollars and go after something big that places them either in greater competition with RE or takes off the market a business that RE could also logically acquire. Their stated strategic goals are similar - grow electronic and recurring revenues and provide integration tools for users of their products. Both see the last part of that strategy as vitial because achieving it can raise switching costs for customers and effectively embed the publishers products into the work flows. Once one of these players gets a leg up the market could become hard to crack for the "looser." Despite suggesting they will return the money to shareholders, RE has no reason to do this and watch as a prime asset goes (cheaply) to one of their primary competitors. It may be fun to watch.

1 comment:

Bruce Bergwall said...

It's interesting that Thomson and RU were cohorts on the acquisition of Harcourt in 2000 and now they appear to have are both sold off most everything that they'd bought. I recall that the hope for both was that the publishers could make the transistion away from textbook format and to the electronic medium but they were not likely to do so with textbook publishers left in control of those properties.