In disposing of its troublesome American educational business for $4 billion, Reed Elsevier has managed to surprise its investors for the second time in the space of two months.

In early May, it opted for a pre-emptive sale of the international arm of Harcourt to Pearson for $950 million. Instead of issuing the usual memo to prospective purchasers, the Anglo-Dutch publisher pursued bilateral talks in the belief that potential cost savings to the buyer meant that it was unlikely to better the price through open auction. The same tactic was applied in this week’s sale of the remainder of the business – but the surprise here was also in the identity of the purchaser. Houghton Mifflin Riverdeep (HMR) was not seen as a frontrunner, given that the acquisitive private equity-backed vehicle already carried $4 billion of debt. Furthermore, its ability to raise additional finance had been questioned after the resignation of Ernst & Young as auditors shortly after the original Houghton Mifflin acquisition.

Any relief among Reed shareholders at the headline price of the two educational disposals – which, at £2.5 billion, was £600 million higher than initial expectations – has been tempered by the tax effect. That leakage means that the net proceeds to the company are a less impressive £2 billion.

The sweetener is that Reed will return that sum to investors – which equates to around 85p a share – through a special dividend. On that basis, the deal should lift next year’s earnings per share to 40p, putting Reed on a multiple of 16.4 times.

Regulatory risks remain. On their own, the market shares of Reed and HMR are roughly 20 per cent and 15 per cent respectively, so the deal will face a mandatory investigation by the competition authorities – which is set to last into the first half of next year. However, with Pearson and McGraw-Hill currently speaking for 30 per cent and 20 per cent of the education market, the risk of the deal being blocked is not excessive.

The drawback of the disposal for Reed’s shorter-term investors is that it makes the company a less attractive target for the sort of leveraged buyout that has often been mooted. In effect, Reed has done part of the job of private equity itself.

So what remains? Reed is left focused on three divisions – science, legal and business – that are leaders in their field. A restructured Reed now offers the promise of 11 per cent earnings growth this year and 10 per cent next, although the weakness of the US dollar may hold back progress on a reported basis. For a professional publisher, Reed, at 656p, is reasonable value. Hold on.

Premier Research

The AIM-listed operator of clinical trials is not the sort of company you’d expect to be caught by the fall-out from Torex Retail. Yet, in sharing a stockbroker, audit firm, chairman and vigorous acquisition strategy with Torex – which went into administration last month – Premier has been tarred by association. That, plus a flaw in its broker’s forecasts, which meant that its year-end working capital fell £12 million short of expectations, has caused its shares to halve over the past six months.

Thus yesterday’s announcement that Peter Fellner, the former chief executive of Celltech, is to fill the vacant chairman’s post is a welcome step in Premier’s rehabilitation. So, too, were last week’s two bolt-on acquisitions for £18.5 million, both of which should boost earnings in their first year. The Boston-based ARS provides expertise in Oracle Clinical, the most widely used software in contract research, while D-Target, of Switzerland, takes Premier into medical devices for the first time.

What this year’s sell-off has obscured is that the dynamics behind Premier’s strategy remain intact. Faced by cost and regulatory pressures, drug companies are outsourcing an increasing proportion of R&D. Trials are also becoming more international. That has played to Premier’s large overseas network, while its strengths in oncology and pain relief have enabled it to grow at an underlying 20 per cent a year, twice the rate of its sector.

At 149¼p, or nine times current-year forecasts, Premier offers compelling value. Buy.

Alba

If there has been a business not to be in over the past three years, it has been selling budget-priced consumer electronics through the British high street.

That much is evident from the shares of Alba, the maker of everything from set-top boxes to sandwich toasters under brands such as Goodman and Bush, which have fallen 83 per cent over that time. The severity of the slide is explained by yesterday’s full-year numbers, in which Alba posted a pretax loss of £44 million on sales down 21 per cent to £566 million and dropped its final dividend for the first time in two decades as a public company.

Alba’s problem is that the pace of product innovation in consumer electronics has accelerated such that, instead of waning slowly and earning respectable profits towards the end of their life, demand for older products now dies overnight. Coupled with the number of its brands and extent of its ranges, Alba has taken a massive hit from unsold stock.

That, together with a 40 per cent cut in staff numbers, lay behind yesterday’s £25 million restructuring charge. Alba is also selling its leisure division – which includes brands such Breville and Dirt Devil – in a move that should wipe out its £52 million of debt, and is reviewing the future of its joint ownership of Germany’s Grundig, which, reflecting the same pressures Alba faces at home, produced a £16 million loss.

The new strategy rests on reducing its product range and giving greater exclusivity to favoured retailers with a target of lifting margins from 6 per cent to 7 per cent over the longer term. Alba has £23 million of tax losses in its favour, as well as the determination of the founding Harris family – who retain 35 per cent – to turn it round. But until the new Alba’s shape becomes clearer, the shares, at 152p, should be avoided.

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