Reed Elsevier again faces tough prospects with effort to sell off RBI assets

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Reed Elsevier announced last week that it is putting a portion of its Reed Business Information unit on the auction block. Again.

Call it “Reed Business Information For Sale, the Sequel.”

This time London-based Reed Elsevier is looking for a happier ending. The business information giant placed its entire Reed Business Information segment on the market in 2008 and early on appeared poised to sell it for $2 billion. But the credit crisis and advertising slump turned the process into a horror show. After bids reportedly dropped to $1 billion, Reed Elsevier pulled the business off the market last December.

The story line now is a little different. Reed Elsevier is selling only a portion of its RBI U.S. division. The company plans to retain some of the stronger brands in its portfolio: Reed Construction Data U.S. & Canada, RS Means, Variety, Marketcast, LA411 and Buyerzone. This group of brands, most of which generate healthy end-user revenue, accounts for about 45% of RBI U.S. revenue.

“They've stripped out the best assets,” said Reed Phillips, co-managing partner at media investment bank DeSilva & Phillips.

For the most part, Reed Elsevier is selling traditional, controlled circulation trade publications. Among the more recognizable titles the company has placed on the block are Broadcasting & Cable, Construction Equipment, Library Journal, Publishers Weekly and Professional Builder. “There is tremendous value in there,” said Ed Fitzelle, managing director for M&A advisory firm Whitestone Communications, but he acknowledged that it will be difficult for Reed Elsevier to unlock that value in the current climate.

As it hoped to do the first time, Reed Elsevier would prefer to sell these properties as a whole, if only to streamline the process. However, the company is now willing to sell them in pieces, as it signaled with the sale of its U.K.-based travel publishing group last month.

Industry observers doubt that Reed Elsevier will be able to sell off the properties it wants to divest in a single transaction. Wasserstein & Co. was mentioned as a potential buyer, but its private equity funds have their hands full with Penton Media and other b-to-b properties that are remaking themselves for the digital age.

Some strategic b-to-b media companies may be interested in some of the assets, but industry observers say they do not anticipate a strategic buyer acquiring everything Reed Elsevier wants to divest. Some of the properties may be snapped up by the current management team. For example, RBI's U.K. travel properties were sold to a former Reed Elsevier employee.

Many of the hurdles that derailed the first attempt to divest these properties remain in place. The credit crunch continues to make it difficult for private equity funds to get favorable financial terms. Diminishing EBITDA for b-to-b media brands are still making it difficult for buyers and sellers to arrive at a mutually agreeable price. Also, the uncertainty about the future profits (if any) of trade publications makes eager and confident buyers difficult to find.

Indeed, by placing these properties on the market in such a difficult M&A environment, Reed Elsevier is giving the controlled circulation trade publication model a ringing vote of no confidence.

Reed Elsevier is not selling these properties to help substantially pay down its debt. Currently, its debt stands at $8.4 billion, with $4.1 billion coming from its acquisition of Choice Point. It will pay down that debt by selling up to 9.9% of the company in a share offering. “It will barely make a dent in their debt,” Phillips said regarding the sale of RBI U.S. properties.

The commitment to divest these properties is a clear statement that Reed Elsevier does not see a highly profitable future in the traditional advertiser-supported trade publication model. “This sale is occurring because they decided these properties aren't a strong fit,” Phillips said.

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