LONDON Reed Elsevier (REL.L) announced the acquisition of U.S. risk-management business ChoicePoint Inc (CPS.N) for $4.1 billion, including debt, and said it would intensify a cost-saving drive and sell an advertising-dependent information business.
Shares in Anglo-Dutch publisher Reed ELSN.AS, which have outperformed the DJ Stoxx European media sector .SXMP by 5 percent over the past year, jumped 9.6 percent to 640 pence.
The company also reported adjusted operating profit of 1.137 billion pounds, up 5 percent on the previous year and 11 percent higher on a constant currency basis.
The $4.1 billion for ChoicePoint comprises $3.5 billion in cash for the equity, at $50 per share, and $600 million in net debt. ChoicePoint shares closed at $33.66 on Wednesday.
The deal, spearheaded by Reed Chief Executive Crispin Davis, who said he had been looking at the U.S. business for a couple of years, marks his latest effort to move the company from low-growth print-based volatile sectors to faster growing online services in the legal, healthcare and financial industry.
Reed (REL.L) said that combining ChoicePoint (CPS.N) with its LexisNexis risk-information service and its Analytics group would create a risk-management business with $1.5 billion in revenue and a leading position in a fast-growing market.
Davis told reporters at a briefing in London that ChoicePoint's insurance business, which accounts for 82 percent of its profits, is the "jewel in the crown".
"Of 600 top customers over the last 10 years they have only lost one customer, that's why it is such a lovely business. It has been clear to us that risk analysis is highly attractive, that is why we wanted to expand our presence," he said.
Reed said ChoicePoint''s board backed the deal, which requires shareholder and regulatory approval. ChoicePoint is based in Alpharetta, Georgia, and employs around 5,500 people.
Reed also said it would divest its Reed Business Information (RBI) arm to reduce exposure to cyclical advertising markets.
Advertising accounts for around 60 percent of revenues at RBI, which itself generates around 20 percent of Reed's 4.6 billion pound group revenues.
Analysts said the RBI division -- minus the exhibitions activities -- could fetch around 1-1.3 billion pounds.
Davis ruled out any move to sell the exhibitions business, which currently sits within the RBI arm, because he said its revenue growth and prospects were too attractive.
Numis said the ChoicePoint buy -- at 4.2 times revenues and 14 times underlying earnings -- was a "full price". However, the broker said Reed could cover the cost of its capital via the cost savings it expects to generate over three years.
Davis said he was wary of imposing any deadline on when the RBI sale might occur given the credit-related turmoil.
He said the he expects strong interest from strategic and private equity buyers and that a demerger might be an option.
"We are open to anything and everything, some are more likely than others. If we can maximize shareholder value by selling it tomorrow we will," Davis said.
The ChoicePoint acquisition and planned RBI disposal were announced with what Reed described as a "more radical" move to cut costs via a restructuring plan.
This largely centers on consolidating back-office functions across the group's divisions and further centralizing areas such as technology, finance, administration and procurement.
Reed, which recently returned $4 billion to shareholders after selling its education publishing assets, said it targets cost savings of 245 million pounds ($477.4 million) over 2008 to 2011 with annual savings of 100 million pounds by 2011.
The restructuring would incur costs of around 140 million pounds.
Davis said there would be job cuts over the next three years, but it was too early to say how many. Recent UK newspaper reports have said the company is considering 1,000 job cuts.
Revenue at the publisher of science journals, legal information and specialty magazines was 4.584 billion pounds, compared with an average forecast of 4.606 billion pounds polled by Reuters Estimates.
Reed raised the dividend 14 percent to 18.1p on adjusted earnings per share of 35.9p, up 12 percent on a constant currency basis.
(Editing by David Cowell)