Will sale of RBI have ripple effect?

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Opinion is sharply divided on whether Reed Elsevier's dual maneuver announced last month—putting Reed Business Information in play and agreeing to acquire data company ChoicePoint for $4.1 billion—will have a major impact on the b-to-b media industry. Reed Elsevier said it is divesting RBI to reduce its exposure to cyclical advertising markets. The unit's major titles include Broadcasting & Cable, Multichannel News, Publishers Weekly and Variety. Reed Elsevier plans to retain Reed Exhibitions. “It's a watershed in the sense that one of the largest players in b-to-b media is saying, "It's not advertising. It's work flow,' “ said David Worlock, chief research fellow at media research company Outsell. “It's a matter of building models on how customers work and using content to add to productivity, develop good compliance and improve decision-making, all with fee-based services.” He added: “The situation now is that this will trigger a reconsideration of a number of b-to-b media companies about their print properties.” Not so, said Reed Phillips, managing partner in media investment bank DeSilva & Phillips. “I don't think it's a game-changer,” he said, adding that the divestiture of RBI had been expected for a while. “I don't think people are going to say, "Reed [Elsevier] is getting out of b-to-b publishing, so we need to rethink our strategy.' Anybody in magazine publishing knows it's a cyclical business, and most companies ride that up and down.” Phillips stressed that while Reed Elsevier wants to reduce its 60% exposure to ad markets, other business publishers might not share that philosophy. “Other companies may think that 60% revenue in advertising is a pretty good mix,” he said. Reed Elsevier's planned divestiture is akin to Thompson Corp.'s move to jettison its print properties in favor of selling online work flow tools in health care, law and scientific research, among other areas. Last July, Reed Elsevier sold the remaining parts of its Harcourt Education division to Houghton Mifflin Co. for $4 billion. That was preceded by Pearson's agreement in May to buy Harcourt Assessment and Harcourt Education International for $950 million. Reed Elsevier has sought to recast itself in recent years as a subscription-based company offering online services, such as science and health information and the LexisNexis databases of legal, news and business documents. Reed Elsevier said that combining ChoicePoint, which provides technology and information-based risk management products, with its LexisNexis Risk Information and Analytics Group will create a risk management business with $1.5 billion in revenue. The deal is expected to close this summer. “Data is the new currency in financial services,” said Virginia Garcia, research director at Tower Group, a research and advisory firm. “The challenge will be to keep the distribution channels intact and retain commitments to local markets.” Analysts said RBI might fetch between $2 billion and $2.5 billion. Private equity firm Apax Partners may bid for RBI, according to The Times of London. Other potential buyers include Bain & Co.; Court Square Ventures, the venture capital unit of Citicorp; and Carlyle Group. Phillips said it was likely RBI's portfolio would be sold intact. “The only way I see them breaking it up would be someone stepping up and paying a premium for Variety and Reed thinking that selling the crown jewel would not undermine a sale of the rest of the company,” he said. Salina Le Bris, a spokeswoman for RBI, had no comment on Reed Elsevier's decision to divest RBI. Reed Elsevier's 2007 earnings report showed that RBI's underlying revenue was essentially flat at $1.9 billion, while adjusted operating profit was up 7% to $562 million, from $524 million in 2006. Online revenue was up 20%, while print revenue fell 2%. Most of the revenue was generated from advertising. M
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