Mar
9
“RELX, not Relicts!”
Filed Under B2B, Big Data, Blog, healthcare, Industry Analysis, internet, Publishing, Reed Elsevier, STM, Thomson, Uncategorized | Leave a Comment
It was a simple enough mistake to make. As I read my screen and saw the announcement two weeks ago I passed on the news to an American friend on the other side of the room. The response prompted the correction from me at the top of this page: Reed Elsevier have renamed themselves after their new stock exchange identity, and are not actually inviting us to call them also-rans. Everyone will appreciate the logic of removing the dual identity and the double quote and the difficult accounting exercise to keep these two trading identities in the market together. But I am left wondering if there is not another, almost subliminal, market message being left here, one to which perhaps even the senior management of RELX are oblivious. Coming a month after the death of Ian Irvine, one of the architects of the deal that brought Reed and Elsevier together, it made me wonder whether the real meaning here is a totally different orientation for the new group, one which would have invited the snarling displeasure of Dr Pierre Vinken, at whose insistence the Dual Monarchy was originally created and launched in January 1993.
Whatever else it is, an “Elsevier” is a book, and indeed in the nineteenth century became the term of use for a pocket book, the contemporary version of a paperback. Reed was a nineteenth century paper company. In some ways therefore these resonances should definitely go, especially since underlying brands like LexisNexis or Elsevier Science remain in place. Perhaps then we are being told that RELX is a bundle of brands invested by a quoted umbrella organization. That would be consistent enough with practice in recent years, and one can imagine that the new structure, the single quote, and the name are designed purely as a play to investors, and have been sold to employees on that basis. After all, one of the lamentations of successive generations of Reed Elsevier management over the years since 1993 has been that the European markets have consistently under-rated the company. After a couple of years of share buy backs and consistent dividend policy, now is the time, one can almost hear them saying, to move away from Reed Elsevier as the sluggish market benchmark in Europe, and re-align RELX as a more dynamic growth vehicle with a much improved rating. And all those with bonus scheme equity holdings not yet vested should cheer that relaunch!
And yet… there are some real risks. The views of investors are always short term and their analysts are as often wrong as right. Does Claudio Aspesi* know more than the professional management of Elsevier Science about what happens next in Open Access? I doubt it, but his views, from his influential desk at Sanford Bernstein, have certainly driven the share price of old Reed Elsevier more than many management announcements in recent years. Further, if you are a bundle of brands represented by a stock market ticker symbol, it is open to everyone in the market to rate you on that brand composition for short term interests. Thus it is now possible to read RELX critics who find the stock “unbuyable” until Lexis Law is divested, or who think Elsevier Health Science is too small in market share terms and should be merged with WK Health and then “IPO-ed”. I wonder who would profit most immediately from that, if not the market-makers themselves? I am not here concerned with whether either of these moves is feasible or desirable: just with the idea that if your focus is unbalanced in the direction of the market, you tend to be driven to appease market sentiment. And market sentiment is a quicksand.
Will it matter to lawyers or scientists that they now buy, ultimately, from RELX? Probably not at all. So what then is the issue? Really one of short versus long term. RELX has a history in science and law and some key business sectors that gives them two advantages. They have experienced management who have shown themselves close enough to ultimate users of information to allow them to judge likely outcomes. Timing is everything. When to press the button is just as important as all the other decisions in new product development. And new product development is going faster in these sectors than ever before. Is that a good time to swap areas of expertise within the portfolio, bringing in areas to which senior management have not been previously exposed and forsaking areas of traditional strength? Or is it a time for long term investment, active acquisition and development programmes, such as the ones that built Elsevier Science, which reposition the brand in the forefront of the marketplace but which take correspondingly long periods to pay back? Whatever choices are made, they surely begin in the market place and end by being packaged for potential investors. It is hard to believe that successful schemes can be created that begin with assessing what investors will swallow, and end with creating market interventions that fit that paradigm.
Fortunately I can end with a suggestion which will please all parties. In 1997-8 RELX attempted to merge with Wolters Kluwer. Why not bring it on again? WK is said to be selling its transport B2B division at the moment, just another of the long list of market exits since the European Commission made its competition opposition clear in 1998. There are now no education or STM assets at WK to get in the way. In the US there would be Health sector competition issues (though there are now other very large content players), but with Bloomberg BNA swarming into the tax market alongside Thomson, combining WK and Lexis on the tax side would make sense. In Europe, Lexis-WK would be powerful in France, though Lexis left Germany to WK, so no competition issues there. Long term bets on the Eurozone would not make the analysts happy, but lawyers in France and Germany are likely to be busy whichever direction the currency takes. And above all, for all of those investors who have boosted the WK share price for 17 years in the hopes of just such a denouement – a payoff!
RELX is not the only player to feel these tensions. Every quoted company is subject to them in one way or another. It is what management do to make these tensions creative and not negative that makes the difference. RELX? RELaX, not RELICTS!