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Reed Elsevier shares jump on Wolters bid talk

LONDON/AMSTERDAM (Reuters) - Shares in Anglo-Dutch publisher Reed Elsevier jumped on Friday amid talk the company could be the target of a takeover bid or asset swap with smaller Dutch rival Wolters Kluwer, traders and analysts said.

Even as speculation regarding a deal, possibly involving a leveraged buyout or private equity interest, swept through equity and credit derivative trading desks, analysts dismissed the bid talk given the regulatory risks such a deal would face.

Reed Elsevier and Wolters Kluwer called off a planned merger in 1998 after EU regulators told the companies a tie-up would significantly impede competition. Merger talk has cropped up periodically since then.

A spokesman for Reed REL.L in London declined comment, while Wolters Kluwer WLSNc.AS was not immediately available.

Reed Elsevier primarily operates in four key markets in Europe and North America: science & medical, legal, education and business.

Wolters Kluwer’s key divisions span education, legal, tax, corporate and financial services and health.

“If you tried to put the two of them together there would be some regulatory issues, particularly in some of the European legal markets and to an extent in the U.S. medical market,” said one analyst who follows European publishers.

“Would those be deal breakers? Probably not, but I just don’t think it is a deal that is likely.

A Netherlands-based analyst said there would be cost savings from combining the two companies, but Wolters Kluwer would need outside backing such as private equity to take over its larger rival.

“If there were to be a merger, everyone would expect Wolters Kluwer to be the target,” the analyst said.

Reed Elsevier’s two parent companies are listed on the London and Amsterdam stock exchanges, giving the combined group a market value of around 21 billion euros (14 billion pounds), compared with Wolters’ 7 billion euros.

At 1:26 p.m., shares in Reed were up 3.4 percent at 586p at at time when the FTSE 100 .FTSE was trading down 0.5 percent. Wolters Kluwer shares traded in Amsterdam were up 1 percent at 22.25 euros.

Five-year default swaps on Reed Elsevier increased 5 basis points to 24 basis points on the takeover speculation, dealers in London said. The price means it costs 24,000 euros a year to insure 10 million euros of Reed’s debt against default.

NEW YEAR CHEER

One analyst said Reed Elsevier’s share price was also being boosted by investor hopes that the shares would perform well this year.

“People are starting to make their picks for 2007. Reed has definitely been flat in the last three to four years, and maybe this is the year for Reed to do well,” he said.

Another added: “It is an obvious New Year stock.”

Reed’s shares traded in London have traded in line with the FTSE media sector over the past year.

“We’re still positive, but like many shareholders we’re frustrated by the performance of the share price ... It’s no different from back in the late 1990s,” said Nick Train, a fund manager at Lindsell Train, who owns around 21 million pounds of Reed shares.

He added: “I’ve always felt that one day the stock will trade on 25 times earnings. It’s currently on 13-14 times. I’ve also always notionally felt that at some stage earnings could be 50 percent higher than at the moment. If all the planets come into alignment, that’s a recipe for potentially a very, very rewarding investment.”

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