Reed Elsevier to sell education arm

LONDON Thu Feb 15, 2007 2:01pm GMT

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LONDON (Reuters) - Anglo-Dutch publisher Reed Elsevier (ELSN.AS), mirroring moves by major Dutch and U.S. rivals, said it would sell its education arm as it focuses on faster-growing markets such as legal, medical and scientific electronic publishing.

Analyst estimates suggested the sale of Reed's Harcourt Education could fetch between 1.6 billion and 2.4 billion pounds.

The disposal announcement triggered a 6.3 percent jump in Reed's shares (REL.L) to 642-1/2 pence on Thursday, their best level in five years.

The sell-off plan overshadowed news that the company had posted full-year adjusted pretax profit and revenue that fell short of average market expectations.

Reed Chief Executive Crispin Davis said bankers UBS had been appointed to advise on the sale, which should be completed by the end of the second half.

The company's decision to sell its Harcourt education business mirrors a trend among major publishers, which have found that although such activities have performed relatively well, growth rates are not as high as they would like.

"This is essentially a strategic decision that we want to focus more sharply on our three existing businesses ... with better growth rates," said Davis.

"The education market is starting to move online, but at nothing like the pace that we are seeing in our other businesses. The attractiveness of the online opportunity (in education) is less clear than in our other three businesses," he told reporters in a conference call.

Net proceeds from the sale of Harcourt Education would be returned to shareholders via a special dividend, Reed said.

The company said exiting education would help it boost earnings per share on a constant currency basis by at least 10 percent annually.

PRICE ESTIMATES, RESULTS

Numis Securities analyst Lorna Tilbian said education businesses usually go for a multiple of 10 to 12 times earnings before interest, tax, depreciation and amortisation.

She expects private equity to be the buyer, with a price tag near 1.6 billion pounds given the other major education assets being sold in Europe and North America.

"We believe Reed should be commended for taking the difficult decision to exit education," she added.

Elsewhere in the industry, Dutch group Wolters Kluwer (WLSNc.AS) and Canada's Thomson TOC.TO TOC.N are both in the process of selling their education businesses.

Analysts have estimated that Thomson's sale could bring in more than $5 billion (2.5 billion pounds), while Wolter's assets are expected to attract offers around 700 million euros (670 million pounds).

But Pearson (PSON.L), which also focuses on the education market, is in the hunt with a mix of publishers and private equity firms to buy Wolters' education arm, people familiar with the situation told Reuters earlier this week.

Reed's adjusted pretax profit in the year to end-December rose 5 percent to 1.052 billion pounds and compared with an average forecast of 1.064 billion in a Reuters poll of 14 analysts. The adjusted figure does not include amortisation and exceptional charges.

Revenue climbed 4 percent to 5.398 billion pounds, compared with an average forecast of 5.433 billion.

"Going into 2007, market conditions are generally favourable," Davis said.

When Reed released a trading update in mid-November, it said its education unit would not reach its full-year growth target for the second year in a row. In 2006, Harcourt Education accounted for around 16 percent of Reed's group revenue.

The drag from the business was highlighted by divisional 006 figures showing flat revenues on a constant currency basis and a 20 percent fall in underlying operating profit.

At legal-market focussed LexisNexis, revenue climbed 8 percent and adjusted operating profit by 13 percent on a constant currency basis, and comparable gains in Reed Business were 5 percent and 14 percent. Health sciences revenue grew 13 percent, while science & technology revenue climbed 5 percent.

Digital-related revenue has risen to 2 billion pounds in five years and accounts for nearly 40 percent of group revenue.

Reed said adjusted earnings per share rose 7 percent to 33.6 pence, but climbed 11 percent on a constant currency basis.

ABN AMRO analyst Paul Gooden said that based on Wednesday's closing share price of 604-1/2 pence, Reed was trading at 16 times forecast 2007 earnings per share.

This looked cheap when set against Thomson on 27 times and U.S. publisher McGraw-Hill Cos MHP.N on 23 times and Pearson on 20 times, he added.

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