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May 12, 2008

Reed Business Information: Redundancy costs and exhibition potential

By Peter Kirwan MM blog

The anonymous author of Business Media Blog picks up on my earlier post about Bernard Gray’s comments on Reed Business Information.

If Gray was talking down the prospects of a successful sale of RBI on behalf of an interested bidder, that’s hardly a crime. Indeed, some would suggest that Gray’s fiduciary duties encourage him to make the comment.

Sensibly, however, BMB is more interested in the prospects of a successful sale.

S/he doesn’t find compelling my point that RBI under new ownership would be free to (or required to) develop its own trade shows in earnest.

The trade show market is very crowded and it is not easy to find new niches of any scale

That’s true. No doubt a big roster of ready-made trade shows would make RBI more attractive. But I still believe that RBI’s strong magazine brands possess a natural advantage over many pure-play show organisers. And I’d argue that there’s a lot of untapped potential for events within RBI.

BMB also raises the question of how a bidder might develop RBI’s business in the future if Reed Exhibitions remains within the parent company. In particular, BMB suggests:

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In many of its core B2B markets Reed Exhibitions owns the leading show — Hotelympia in the catering sector for example — so I would presume that Reed would require some kind of restrictive covenant on competing from a new owner of RBI.

Interesting thought. But how would such as “restrictive covenant” be structured?

Reed Exhibitions runs 460 shows and conferences. Accordingly, from RBI’s point of view, there’s a risk that any covenant is going to be very restrictive — to the point of placing a restraint on RBI’s ability to trade.

More likely is some kind of deal that involves Reed Exhibitions paying the relevant RBI titles for supporting specific shows and conferences.

Contracts like this aren’t ideal — I’ve lived with them in the past — but they are more plausible than restricting RBI’s ability to enhance its business under new ownership.

It looks as if the author of BMB might be an insider. Among other things, he/she agrees that a successful bidder for RBI would get to take plenty of costs out of the business.

Playfully, BMB suggests that “firing the COO would cost at least half a million alone”.

If that’s even remotely true, one can only admire the negotiating skills of Mark Kelsey — the executive in question.

More seriously: cuts come eventually to every well-upholstered business. The crucial point is that redundancy costs are a one-off exceptional cost. By contrast, the extra profits released by those cuts are a multi-year benefit. Between those two realities, there’s always room for negotiation.

Here’s a final pointer in favour of a successful sale, and one I haven’t mentioned before — Reed Elsevier’s stance. I get the strong impression that Sir Crispin Davies wants to move ahead quickly with the reincarnation of the business he runs. His shareholders like the direction in which he’s going.

Whisper it ever so quietly, but these factors might just result in some room for manoeuvre about price. Arguably, this is a luxury that EMAP’s Alun Cathcart didn’t enjoy.

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