Thomson Learning Sale Update

The Financial Times updates the status of the Thomson Learning sale suggesting that first round bids will be submitted at the end of April. As things go this is slightly later than originally planned but they also confirm that the purchase price is expected to exceed $5.5billion which is approximately 10x EBITDA. From the article:

The bidders include a consortium made up of Bain Capital Management, Thomas H. Lee Partners, the Blackstone Group along with Bertelsmann, the privately-owned German media company; a second bidding group is made up of Providence Equity Partners, which is possibly teaming with one other investor, and has the learning division’s management’s on its side, according to the sources. The Carlyle Group and Kohlberg Kravis Roberts & Co. are bidding alone, the sources said. Providence’s partners in the bid could not be confirmed, but one of the sources said it is teaming up with Ontario Teachers Pension Plan, while another source said it is teaming up with Pearson

Google Book vs Microsoft Live Search

I will post more on this next week but the differences between the two presentations was considerable. Regrettably, Microsoft may have the better product. Regrettable, because on the basis of attendees at the respective presentations, few publishers will know it is better because few publishers bothered to show up at the presentation. This may have been partially due to the difficult to find conference room in which the presentation was made; however, MS only had about 20 attendees versus two Google presentations in front of over 125 in each case.

Microsoft have definitely learned from Google in the way Google approached the presentation and the management of the publishers' content. The display is visually more appealing in the Live case and they have incorporated a number of widgets that allow outbound linking which will be very useful to users and publishers. It is the publisher 'work-bench' that I identified as a key differentiator. In Live, the access for a publisher to manage the content - particularly content access, pricing and rights information - is especially functional versus the Google model. I will look into and describe the benefits to Live next week.

No publisher should market and promote their books exclusively through the Google Book program. Intuitively, most publishers would understand this, but why there were so few people willing to spend the time with Microsoft is shocking. Microsoft Live for Books is the new kid on the block and it would seem more likely that having heard the Google spiel numerous times, publishers would be very interested in hearing from someone else. Especially when that someone else has gone out of their way to support publishers copyright.

London Bookfair

It is a fabulous venue for LBF this year; I missed last year's disastrous trip to the Docklands but against Olympia the venue at Earls Court is far superior. It also helps that the organizers have listened to the attendees and the publishers to make the aisles wider, the furniture and fixtures more accommodating and pleasant and made sure there were enough food outlets. Olympia was especially bad at food and drink outlets.

It is also an active show with a lot of seminars to attend but the traffic on the floor is also robust. There is more than enough discussion about the state of the business both from the perspective of publishers and retailers. There has been some expressions of concern I have heard about the state of book retailing in the UK and the unknown impact of the Border's divestiture. There have been rumors that Richard Branson is interested in acquiring the chain and if that were to happen perhaps it would invigorate the book segment. There is a pervading emotion of disappointment by publishers in the way book retail has been managed in the UK and there is a general feeling that publishers can not expect improvement any time soon. It is a sad circumstance.

Given the level of acquisition activity in education publishing, there is a sense from publishers I spoke with that this is going to continue to be a very active year. There is an expectation that the Harcourt and Thomson deals are only the beginning and that trade will also see at least one major house put on the block before the end of the year.

Weekly Update

As mentioned London Bookfair is next week and posts will be sporadic.

Deal News:
Wicks buys Thomson Education Direct (Distant Learning) Times Tribune
Torstar may be under attack and what of Harlequin? National Post
A possible buyer of the Borders' Australia and New Zealand stores. NZ Herald
Media finance conference in Europe announced. Release
Buyers are less then enthused with Primedia enthusiast magazines. Reuters
Reed Elsevier advised to gear up. The Independent
Nancy McKinstry thinks Germany is ripe for new deals. Reuters
Axel Springer likely to do more deals soon (doubtful in publishing). The Australian

Google News
Lorcan Dempsey linking to comment on Google and Publishers Blog
Adam Hodgkin on publishers grumbling about Google Blog

Education:
Harcourt have had a lot of problems in School academic testing this year. Casper Trib. ZDNET
Thomson revolutionizes marketing text Release
There will be more on this: Wikipedea 'broken beyond repair' according to founder. ITNews

Other News:
Penguin obsession Blog
Peter Brantley's lively discussion over a $58 Paperback Blog
Mike Hyatt on Imprints and the decision to do away with them Blog
GalleyCat linking to a Bookseller article about what works here but not there. Blog
Joe Wikert gets all riled up about the logic of Print Blog
Reed Elsevier can't trade mark 'Lawyers.com' Bloomberg
SmartMoney wonders why no one is excited about Gannett. Smartmoney
The commercial E-Book market is broken. Blog

People:
McGraw Hill Hire Dan Caton as Head of Learning Group Release
New Board Members for SIIA. Release
Riverdeep/Houghton Mifflin announce appointment of President. Release

Sport:
Man Utd into the Champions League semi-final in style BBC

Reed Speculation

Via the Independent (UK), an investment analyst is suggesting that Reed Elsevier is under-valued and that a PE bid could push the share price up 85% higher than yesterdays close of 619p.

Collins Stewart adds that, with a current debt weighting of just 1.4 times earnings, Reed is under-leveraged and if it does not gear up its balance sheet "maybe private equity will do the job instead". The broker estimates at a debt multiple of 8 times earnings the shares could be worth up to 1,147p

Once the sale of Harcourt is done perhaps some activity will heat up. I see them being very interested in Bureau van Dijk as it would fit nicely into their legal and regulatory segment. Interestingly, the international spread of BvD could also aid Reed in expanding legal and regulatory into wider global penetration with new products and data/information.

Media Deal Confusion: But Lots of Them

From Financial News Online (US) there were 282 disclosed deals valued at $114.6bn (€87.3bn) in the entertainment sector in 2006 according to PricewaterhouseCoopers , marking the best year for M&A in the media and entertainment sectors since 2002, when there were $118.6bn of mergers done. According to PwC the outlook for 2007 looks stronger, with a backlog of 132 deals worth $103bn. Those deals, which have been announced but not completed, include the proposed buyouts of Clear Channel and Univision,valued at $26.7bn and $13.5bn.

Given the activity that folk in the publishing and business information segment have seen in the past 12mths, it is no surprise that the numbers year on year look impressive. Two very active investment banks in our sector also publish annual reports on their views of the business. (Veronis Suhler also active in this space publishes a fat annual report which is sold so I didn't access it).

In their report presented in January The Jordan, Edmiston Group contended that there were 621 deals worth $57.3Billion in 2006 and 542 deals worth $54.0Billion in 2005. The JEGI report covers 11 media segments with Marketing and Interactive Services with 138 deals and Online media with 174 deals leading the way. A short synopsis of each segment and the notable deals for each is also presented in the report. By way of forecasts, they only project what they expect to see happen in the trade show space which increased in the number of deals between 2005/6 but saw a decrease in the value of total deals. (In each of their periodic reports they pick a segment to forecast and more of these past reports are on their web site).

Desilva and Phillips has also done considerable business in the past year - by their own admission more than their pessimistic 2005 forecast - and while the numbers are again different from those above they do show impressive growth. From Desilva and Philips 2006 Market Report there were 151 deals worth $20.5Billion in 2006 and 115 deals worth $6.0Billion in 2005. They do take a look into the future:

Just as the economic outlook continues – even improves – in 2007, we see a continuation of a great deal market. We expect the number of deals and the dollar volume to continue – at least – at the record level of 2006. We are also aware of a very full deal pipeline. We expect to see more public companies going private, just as Reader’s Digest did – and it’s not just Sarbanes-Oxley. As we’ve seen, media executives now know that they need to transform their companies into platform-neutral content enterprises combining strong traditional and new-media distribution channels. But to do this makes it even more difficult to manage earnings from one quarter to the next, as the public markets demand. One result: the solution offered by buyout firms looks ever more attractive.

The outlook for M&A in 2007 is as good as we’ve ever seen. All the pieces are in place: availability of funds, favorable interest rates, eager buyers without the time to build rather than buy, brands that need to find new delivery platforms, and a regulatory climate that all but deliberately discourages new companies from going public and existing public companies from controlling their own fates. There is yet another population of buyers perhaps waiting in the wings – European media businesses newly flush with a strong Euro and, finally, thriving domestic markets. To say we’re looking forward to the excitement is an understatement.

No matter how the numbers are tabulated, given the activity already announced at the tail end of 2006 and the first quarter of 2007 it is hard to see 2007 not being a banner year for M/A activity in the media space. Already Wolters Kluwer education has gone for over $1.0billion, Veronis (Private Equity) has purchased Advanstar for over $1.obillion and Houghton Mifflin has been purchased by Riverdeep. In the wings are expected $4-5Billion deals for Thomson and Harcourt and $1.0billion for Bureau van Dijk. If Pearson or Reed are gobbled up by PE then it really will be a banner year.

There is a key comment in the above forecast which studiously points out that some very big and seemingly sophisticated media companies still have a lot to do to re-make their companies into 'new-media' content providers and not print companies. Five years hence the companies purchased by private equity will burst forth into the public markets in almost unrecognisable form having gained the flexibility to transform their companies into true online and new media players.

Deal News: Bureau van Dijk On the Block

The Daily Telegraph is reporting that Bureau van Dijk has hired LongAcre Partners and Goldman Sachs to review the company's strategic options. Generally a prelude to a sale.

Industry sources said Bureau van Dijk is likely to generate bidding interest from business information publishers Reed Elsevier, Reuters, Pearson and Incisive Media, which was last year acquired by private equity firm Apax. US bidders such as Dow Jones & Co, publisher of the Wall Street Journal, Standard & Poor's owner McGraw-Hill and Factset are also likely to be interested.

BvD was sold to Candover a number of years ago when the founder and owner sold 60% ownership. Senior management own the balance of the stock. The company publishes business and company information on millions of companies (private and public) around the world. From their web site:

We provide detailed, analytical databases, for in-depth research, such as AMADEUS (a pan-European database), ORBIS (33 million companies around the world) as well as extensive country-specific databases (FAME, DIANE, DAFNE). These products are ideal for in-depth research of individual companies, identifying
companies complying with specific criteria plus detailed analysis of company
peer groups and benchmarking. In addition, our ZEPHYR database covers M&A
deals and rumours around the world.

The Telegraph suggests the company could be worth over $1.1billion; however, financial information is sparse and this company could be a one of a kind deal given the value of the type of information it collects and the depth of its databases.

Bloomberg LP

The NY Times has a short item regarding the $20Bill Fortune valuation of Bloomberg LP. In happy news to all the potential operating company acquirers, when Bloomberg is asked if he could watch the company be acquired by private equity he says no. There is no indication that a sale is in the works (an offer was rumoured last year) and other than the unlikely event that Bloomberg will run for President it doesn't look like anything will change until he has finished his term as Mayor. As The Times alludes, real numbers are hard to confirm but with operating margins of 30+% and a commanding market share this could be an expensive purchase for someone; whether it would go for the multiple Fortune suggests is hard to believe but I am prepared to be surprised.

With the cash that Bertelsmann, Reed and Thomson have or will have there could easily be some competition for this one in the next 6-18mths.

BookExpo America Conference Agenda

The pre-show education and seminar program has been announced by BookExpo America and I wanted to draw attention to my contribution. A few months ago, I thought it would be interesting to hear from some publishers who are using blogging to get their message out and to understand the issues, surprises and successes. The organizers have used my idea to build a program around this theme and I hope you will join us and support the rest of the program.

Here is the day/time and description of the seminar. As you can see, I will be supported by a purposely divergent group of publishers.

Thursday, May 31, 2007
2:30 – 3:30 PM
1E04
Corporate Social Media Platforms: A Case for Publisher Participation
Corporations in all industries are experimenting and effectively using social networking tools to build product awareness, communicate and converse with customers and experiment. In the publishing environment, books provide an easy platform for the many individual consumer and author blogs that exist – and there are many – but what of the publishers?
For publishers, the question is not whether they should be involved in social networking activities (blogs, RSS, podcasts, etc.) but HOW should they go about experimenting and launching effective social network programs. This session provides an overview of the activities of various publishers and provides a window on their motivations, successes and expectations. Audience members will hear how these publishers are creating a ‘social’ identity to leverage their brand, content and authors and support marketing and sales goals.

Moderator: Michael Cairns, Information Media Partners
Panelists:
Karen Christensen, CEO, Berkshire Publishing
Jimmy Behrle, The Overlook Press
Mike Hyatt, CEO, Thomas Nelson
Carrie Kania, Publisher Harper Perennial, Harpercollins

London Bookfair

LBF starts a week on Monday and I shall be there. Let me know if you would like to meet at the show or later in the week in London. I am looking forward to it and perhaps will report on some of the sessions I plan to attend and whatever else I hear about during the week.

Email: michael.cairns@infomediapartners.com

Richard Dawkins: The God Delusion

Well it is Easter weekend and I thought appropriate to mention that I just finished The God Delusion by Richard Dawkins. The book is only one of several the author has written over the years and if they are as readable as this one they might be good to look for. This book is very entertaining and believable (although I suspect if you are staunchly religious you might not think the latter), and the writing style is less heavily dogmatic than it is conversational. It makes fairly easy going even though some of his arguments are complex. Here is an short interview with him on the UK news show Newsnight.


The title has been out for months and is a best seller in the US and UK, and it may have tapped a nerve with respect to the increasing representation of religion in politics and political life. It is interesting to read that he makes an assertion (as other writers cited by him have also concluded) that many of early leaders of US political life (notably Jefferson) were probably atheists. Given this shared perspective that the founding fathers had in creating the constitution I wonder what they would think about the current mingling of religion and government - not just here but all around the world.


Lastly, I am unsure of the motivation for the design of the US book cover but I was struck by the association with the (stupid) mirror on the cover of Time's Person of the Year issue. The God Delusion has a bright silver mirror like cover and in reflecting your image to you it seems to emphasise Dawkins view that "we make our our purpose in the world" and our purpose and morality in life should not governed by organized religion.


Dawkins website

Borders: The Gang That Couldn't Shoot Straight

Quick on the heals of their mediocre strategy declaration a couple of weeks ago the company announced yesterday a reasonably significant recapitalization of their current and revolving debt facility. True to form, the details were not exactly clear in the press release why this strategy made sense and why their financial advisers seemed to have a material stake in the effort. So arcane is the description of what they intend to do with the $250mm that I have yet to find a financial report deciphering it.

Borders Group has been advised that, in connection with establishing a hedge of the convertible note hedge and warrant transactions, the counter parties to those transactions or their affiliates expect to enter into various derivative transactions with respect to Borders Group's common stock concurrently with or shortly after the pricing of the notes. The counter parties or their affiliates may also enter into or unwind various derivative transactions with respect to Borders Group common stock and/or purchase or sell Borders Group common stock in secondary market transactions following the pricing of the notes (and are likely to do so during any observation period relating to the conversion of a note).

The lack of reporting could also be the result of their apparent omission of any reference to an action like this in aforesaid strategic plan. Nevertheless, it doesn't really matter since this morning they decided that they needed to reconsider and that they were cancelling the offering. They blame shareholder feedback - which must have been pretty swift - and my guess is that the existing shareholders were not at all convinced that this financial restructure wasn't going to be immediately dilutive. It is also likely the shareholders found out via the press which doesn't seem ideal....

Borders Group, Inc. (NYSE: BGP) has determined, based on shareholder feedback,
to re-evaluate its proposed offering of $250 million of Convertible Senior
Notes, announced yesterday. The offering will not proceed today as originally
planned while the company re-evaluates this and other financing alternatives.
Upon completion of this re-evaluation process, Borders Group will issue an
update at a later date.