Sir Crispin Davis, the chief executive of Reed Elsevier, put his company’s struggling education arm up for sale yesterday in the hope of raising £1.6 billion and boosting Reed’s sluggish share price.

The decision is a strategic about-face for the Reed chief who six years ago spent $4.5 billion (£2.3 billion) buying into US education through the acquisition of Harcourt General, only to discover that its growth prospects were not as great as hoped for.

Reed will now concentrate on its three remaining business areas of scientific, legal and professional publishing, and hand back the spare cash to investors, once the company has paid an estimated £200 million of tax and other liabilities.

Sir Crispin said that he had “no regrets” about the acquisition of Harcourt, the biggest deal of his eight-year tenure. He argued that the business “had generated $1 billion in profit, but had not developed in the way that we had hoped”. Its book value is $2.5 billion.

Background

• Reed Elsevier to quit arms exhibitions

• Cinven eyes Reed assets

• Reed evolves to go with the flow

• Reed Elsevier to sell education arm after poor performance

• Pearson buys Reed text book arm for £425m

Reed sale shows faith in internet

Companies are not talking about future earnings online, they are making money from the internet now, Reed's decision expresses this

Related Internet Links

• Reed Elsevier company information

• Reed Elsevier share price chart

• Reed Elsevier forecast

Reed’s shares gained 6 per cent to 644½p, their highest level for nearly five years, amid relief that a poorly performing unit would be disposed of. The shares have struggled to rise because of the impact of the weak dollar and a broader decision by many funds to underinvest in media stocks.

The sale will attract trade and private equity buyers. However, Reed will face a challenge to achieve a high valuation because there are two other education businesses up for sale: Wolters Kluwer’s €700 million (£470 million) operation, and the larger Thomson Learning, worth about $5 billion, which focuses on higher education and professional tuition.

Lorna Tilbian, of Numis, said the business would be worth £1.60 billion to £1.92 billion. She said: “Given that there are other education businesses for sale, we expect the proceeds to be at the lower end of this range.”

Among those chasing Wolters Kluwer were Sanoma WSOY of Finland; Wendel Investissment, owner of the French educational publisher Editis; and Houghton Mifflin Riverdeep, an acquisitive Irish sector specialist. Its chairman, Barry O’Callaghan, is thought to be interested the Reed sale, too. Pearson, the market leader, believes that it would face regulatory obstacles if it were to bid.

Sir Crispin said that growth in education revenues had been uneven. He said: “We had 30 per cent growth in our first year, but no growth at all last year. Spending by US states has become lumpier, with Texas, for example, cancelling a text book adoption suddenly.”

Reed’s education business has acted, over the past two years, as a drag on growth. Revenues for 2006 were down slightly at £889 million, while operating profits tumbled by 19 per cent, on a constant currency basis, to £129 million.

Reed Elsevier as a whole generated pretax profits of £721 million in 2006, up 3 per cent, on sales 4 per cent ahead at £5.4 billion, or 6 per cent on a constant currency basis.

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