With an opening rise on Wall Street, leading shares are edging higher in London, but Reed Elsevier is one of those missing out.
The Anglo Dutch publishing group has been the subject of a number of rumours recently, including talk of a private equity break-up bid, a revival of the idea of it merging with rival Wolters Kluwer, and a management buyout of its exhibitions business. But analysts at JP Morgan Cazenove have today poured cold water on those ideas, helping send the company's shares 4p lower to 515.5p. Caz said:
There has been a lot of news flow regarding potential M&A, but we put little weight on most speculation:
1) Potential sale of Exhibitions – while we see good reason for private equity interest in the business unit, we do not expect Reed to sell any time soon given the strong free cash flow generated, and think any offer price would need to be greater than £1.5bn;
2) Potential combination with Wolters Kluwer – Reed recently sold an asset to Wolters (LexisNexis Deutschland), which would be pointless if the companies were thinking about a combination. While we see more than £300m per annum of cost savings that could be achieved in a merger (especially in software/product development, overhead, real estate), we do not see revenue synergies and ultimately think it would prove impossible to decide how much each line of stock (Reed PLC, Reed NV, Wolters NV) would own in a merged entity;
3) Private equity bid for Reed – we put no weight on speculation regarding a bid for Reed given the size of the company (Reed's enterprise value is around £16bn), and our view that even in a breakup scenario, buyers for the different divisions are not obvious (some divisions are still sizeable and do not fit well within portfolios of other trade players).
Despite all that, Caz believes the company is seeing an improvement in trading, and has an overweight rating on the business with a 650p price target.
