Reed International PLC
Reed International PLC
Incorporated: 1903 as Albert E. Reed & Company Ltd.
Sales: £1.93 billion (1995)
Stock Exchanges: London Amsterdam New York
SICs: 2711 Newspapers: Publishing, or Publishing & Printing; 2721 Periodicals: Publishing, or Publishing & Printing; 2731 Books: Publishing, or Publishing & Printing; 2741 Miscellaneous Publishing; 7375 Information Retrieval Services; 7389 Business Services, Not Elsewhere Classified
Originally a paper manufacturer and later a conglomerate, Reed International PLC is now a holding company with a half-interest in publishing giant Reed Elsevier PLC, which was formed in 1993 from the combined publishing operations of Reed International and the Dutch publisher Elsevier N.V. Through Reed Elsevier, Reed International co-owns companies in the areas of scientific, professional, business, and consumer publishing. Reed Elsevier is one of the largest publishing groups in the world.
Origins with Paper Mill in Late 19th Century
The beginnings of the company date to 1894, when Albert Reed bought Upper Tovil paper mill at Maidstone, Kent. He was then 48 and already successful in paper manufacturing. After going into the paper business as a boy he had become a manager, and then part owner, of a number of paper mills in different parts of the country, but Upper Tovil was the first that was entirely his. It had been badly damaged in a fire when he bought it, so he was able to install new machinery before reopening it.
Over the years Reed had experimented with different materials and machinery to produce types of paper suitable for the half-tone blocks that were then being introduced. At his new mill he specialized in these papers and soon built up a good trade with the publishers of illustrated magazines. Within two years he had more than 100 employees and had installed a new machine. When Upper Tovil had been expanded to its limit, Reed bought other mills, owning seven by 1903. In that year the business was incorporated as Albert E. Reed & Company Ltd., to enable more capital to be raised.
One of the firm’s best customers in its early days was the publishing business of Harmsworth Brothers. This connection chiefly fueled Reed’s growth from 1904 onward. Alfred and Harold Harmsworth, shortly to become Lord Northcliffe and Lord Rothermere, respectively, had built up the most dynamic publishing business in London. Only 15 years after launching their first magazine, Answers, they controlled a string of magazines and newspapers, including the successful Daily Mail They had one failure, however, a new paper aimed at women, called the Daily Mirror. To save it they decided to relaunch it in 1904 for a general readership as an all-picture paper, using a new grade of fine newsprint introduced by Reed. In this form the Daily Mirror became a success, and the Reed paper business grew with it. By the outbreak of World War I in 1914, the Daily Mirror was the largest selling daily newspaper in the world, and Reed was supplying the newsprint not only for that but also for several national newspapers. The company took over more paper mills in the United Kingdom and invested in pulp mills in Norway and in Newfoundland, Canada.
World War I put a temporary stop to Reed’s growth. Supplies of pulp from Scandinavia were cut off, newspapers became smaller, and Reed was forced to close some of its mills. At the same time the Newfoundland venture proved uneconomical. Reed sold it to his friends, the Harmsworths, who were developing their own pulp mill nearby.
Soon after World War I another financial crisis was precipitated by Albert Reed’s death in 1920. His twin sons, Ralph and Percy, were determined to carry on the business, but a large sum had to be found to pay the duty on their father’s estate and, in any case, some members of the family wanted to turn their shares into cash. Once again, the Reeds turned to their largest customer. Lord Northcliffe had died, but Lord Rothermere agreed to buy a large block of shares in Reed, through the Daily Mirror and Sunday Pictorial companies, which he now controlled. The Reed brothers still had voting control, but Rothermere’s holding of around 40 percent of the equity rendered him a major influence in its affairs. He seems to have made little use of this influence, having had many other business commitments, but half a century later this shareholding was to change the nature of Reed’s business.
The Reed brothers began to implement the plan for the company that their father had conceived during the war. This was to sell their remaining overseas operations and most of their U.K. mills and concentrate their resources on a single, modern plant, using the largest machines available. In this way they hoped to undercut all competition. A site was selected at Aylesford, a few miles downriver from Tovil, and the new mill began production in 1922.
The new strategy worked well. Despite the Depression the Aylesford plant was steadily expanded and, by 1939, was the largest of its kind of Europe. Newsprint remained the company’s chief product, but from 1929 onward Reed also made kraft paper from which it produced corrugated board and paper sacks. With these new products the company captured a large share of the packaging market.
Crisis in the 1950s
During World War II production had to be drastically reduced because of lack of pulp and did not regain prewar levels until 1950. The next few years were a boom period for Reed. The company added to its newsprint and kraft manufacturing capacity, expanded into new forms of packaging, entered the paper tissue market in a joint venture with Kimberly-Clark, and invested some of its profits in pulp mills overseas. Within seven years Reed’s work force doubled to 14,000.
In the late 1950s, however, conditions changed for the worse. First the government put an end to the price-fixing arrangements that Reed had with other paper manufacturers, and then to the tariffs that had shielded the U.K. paper industry from Scandinavian competition. This latter change was the result of U.K. membership in the European Free Trade Area and was to be introduced over several years, but its implications were clear from 1959. Without the tariffs, newsprint and kraft made from imported pulp would be unable to compete with Scandinavian products. Reed would have to make major changes.
It was unfortunate that the company had to face this crisis with a relatively untried management. Sir Ralph Reed had retired in 1954, ending the era of family control, and his most able colleague, Clifford Sheldon, had died a few years earlier. The new chairman, Lord Cornwallis, and managing director, P. G. Walker, both came from outside the paper industry. They took prompt steps to reduce the company’s dependence on imported pulp, but could not prevent a slide in profits. In 1960, the company’s largest shareholder decided to intervene.
This was no longer Lord Rothermere, who had sold his shares in the Daily Mirror in the 1930s, but a new group that had been created from the nucleus of the Mirror. The latter paper and the Sunday Pictorial had declined in the 1920s under Rothermere’s ownership but had recovered under his successors. In the late 1930s a new team led by Guy Bartholomew and including Cecil King, a nephew of Lords Northcliffe and Rothermere, had completely restyled the two papers. Now they were aimed at younger, working class readers. Through a mixture of populist style and radical campaigning on social issues, they captured most of this market during the unsettled war years and increased their hold on it in the more prosperous times that followed. The combined circulation of both papers rose from around one million in the 1930s to more than five million in the 1960s.
Conglomerate in the 1950s and 1960s
From the large profits that flowed from this success, Cecil King, who became chairman in 1951, began to build a broad-ranging publishing group. It bought further newspapers, in Scotland and abroad, and a stake in one of the first commercial television companies in the United Kingdom, Associated TV, which proved to be highly lucrative. King next turned his attention to magazines. In 1958 he bought Amalgamated Press, the magazine group founded by his uncles, then Associated Iliffe Press, and finally Odhams Press. This included newspapers as well as the Odhams, Newnes, and Hulton magazine groups. When the Mirror and Pictorial companies became the International Publishing Corporation (IPC) in 1963, it was by far the largest publishing group in the United Kingdom. It had four mass circulation newspapers, all of the leading women’s magazines, a host of specialized magazines and directories, and no less than 25 printing plants.
Through this period of upheaval the Mirror and Pictorial companies had held on to their shares in Reed, which they saw as a substantial asset, to be protected and developed. When its future began to look uncertain, King obtained voting control of Reed by transferring to it all of the pulp and paper mills owned by Mirror and Pictorial. In 1963, while retaining the chairmanship of IPC, he made himself chairman of Reed and installed one of his senior managers, Don Ryder, as managing director.
Don Ryder was a former financial journalist who had shown a flair for management. Under his vigorous lead, Reed expanded and diversified. Its success in packaging and its growing overseas interests had already reduced its dependence on the U.K. newsprint and kraft business, and Ryder speeded up this process by a series of takeovers. First he bought companies in other branches of the paper and packaging industry. Then in 1965 he successfully bid for The Wall Paper Manufacturers (WPM), a large but sleepy company that then had a virtual monopoly of the wallpaper market in the United Kingdom. It also included a paint business and Sanderson fabrics. In the same year, Reed bought Poly cell Holdings, which made Poly-filla and other decorating products. With these brands Reed acquired instant dominance of the fast-growing do-it-yourself market. Then, through further takeovers, Ryder took Reed into bathroom equipment and other building products. By 1970 the company could be described as a conglomerate. Its work force had grown to 56,000. The enlargement of its share capital had freed it from IPC’s control, and its market value had risen well above that of IPC.
Meanwhile, IPC had run into difficulties. The worst of these concerned the Daily Herald, a Labour Party newspaper owned jointly by Odhams and the trade unions, which lost money steadily. IPC persuaded the trade unions to relinquish their share and relaunched the paper as the Sun. This was no more successful and was finally sold to Rupert Murdoch at a very low price. In addition, there were serious losses on the printing side of IPC. Many of the works it had acquired in its takeovers were found to be obsolete and had to be closed down or modernized at further cost.
Finally, King’s activities created a problem. Instead of tackling the company’s financial difficulties, he became increasingly preoccupied with politics. The Daily Mirror had helped to get the Labour government elected in 1964, and afterward King felt that it should listen to his views. When it did not, he turned on Labour with irrational fury. In 1968, on the front page of the Daily Mirror, King demanded the prime minister’s resignation. King’s colleagues at IPC felt that he was misusing the paper’s power and forced him to resign.
Tough Times in the 1970s
King was succeeded by Hugh Cudlipp, a brilliant editor but a poor businessman. Afterward, he admitted that his chairmanship of IPC was “uninspired.” The company’s decline continued and takeover rumors began. As IPC still owned 27 percent of Reed, and Ryder could not allow it to fall into unfriendly hands, he and Cudlipp agreed in 1970 that Reed should take over IPC.
The combined company was named Reed International, incorporating part of IPC’s name, and its turnover made it the thirtieth largest U.K. company. Its work force numbered 85,000, and its business spanned more markets than at any time before or since. Reed’s position in most of these markets, however, was far from secure.
The U.K. paper business was still contracting, and Reed had to close down some operations in the 1970s. Its Canadian pulp and paper business was only intermittently profitable. The printing business inherited from IPC continued to lose money, even after the older plant was closed, and Reed failed to deal with its overmanning. WPM faced increasingly tough competition in wall coverings and saw its market share steadily eroded. Newspaper circulations in the United Kingdom were declining and all of IPC’s nationals lost ground. It was the Sun’s recovery under Murdoch that hit the Mirror hardest.
In the early 1970s Ryder kept profits moving upward, by rationalizing in the weaker areas and increasing investment in the stronger ones. Indeed, his reputation as a manager was so impressive that at the end of 1974 he was plucked from Reed by the government to head its new National Enterprise Board. His successor, Alex Jarratt, continued to implement Ryder’s policy, but it was no longer working. In 1975-1976 the company’s profits fell by more than 50 percent, and in the next few years made only a partial recovery.
Only in 1978 did the company recognize that the expansion policy initiated by Ryder had failed in the long run. Turnover had grown tenfold in his 11-year reign, but profits had grown much more slowly, and the outlook was poor. Jarratt decided to dispose of its unprofitable parts. Most of the overseas subsidiaries were sold, and the work force was reduced to 60,000. Nevertheless, 1980-1981 saw another halving of profits, and another round of cutbacks began, this time mainly in the U.K. paper division.
Revitalized as Publishing Group in the 1980s
In 1982 a new chief executive was appointed, Leslie Carpenter, who had come up through the magazine division of the company. The next annual report pointed out that 60 percent of the company’s trading profit was coming from the 40 percent of its turnover that lay in publishing. From that time onward, new investment was concentrated in this area. Local newspaper chains were acquired in the United Kingdom, together with publishing and exhibition companies in the United States, where the Cahners subsidiary, a magazine publisher wholly owned since 1977, was thriving.
At this time the company’s publishing activities still included U.K. national newspapers. Despite the introduction of photocomposition, these were far less profitable than the magazines. In 1984 Reed decided to float them as a separate company. “National newspapers do not sit easily in a large commercial corporation,” said Carpenter. The move was forestalled by a takeover bid for the newspaper group, which was accepted. This was from Robert Maxwell, who had already bought the Odhams gravure printing works from Reed.
Reed was thus left with a flourishing magazine business on both sides of the Atlantic and a miscellany of less profitable manufacturing businesses—the much-reduced paper and packaging division, as well as paints and building products. During Carpenter’s time as chief executive there were further disposals in the manufacturing area, and the final moves to abandon manufacturing were made under his successor, Peter Davis, who became chief executive in 1986.
The most significant change came in 1987. In that year the paints and do-it-yourself division was sold, and Octopus Publishing was bought. Octopus, which cost Reed £540 million, was the largest publishing business the company had acquired since IPC. It was a diversified international publishing group with a major presence in mass market nonfiction books, fiction and general trade books, children’s books, educational books at both the primary and secondary level, and in business and technical books, and greatly increased Reed’s strength in these areas. Its founder, Paul Hamlyn, moved to Reed with the business and became the company’s largest noncorporate shareholder.
Paper and packaging, for so long Reed’s sole business, was the last of the manufacturing divisions to go. It was bought in 1988 by its own management, taking the name Reedpack, and two years later was sold again to a Swedish company, Svenska Cellulosa. Reed also sold its North American paper group to Daishowa Paper Manufacturing Co., Ltd. in 1988 for C $594.
With Reed now a purely publishing concern, Davis quickly moved to bolster the company’s position through acquisitions. In 1989 Reed purchased the U.K. consumer magazine TV Times for £123 million. Later that same year, £535.4 million was spent to buy the Travel Information Group, a U.S. travel guide producer, from the News Corporation. The following year Reed enlarged its presence in the area of legal publishing with the purchase of the American firm Martindale-Hubbell for £189 million. Martindale-Hubbell was subsequently merged into Reed’s existing legal publisher, R. R. Bowker, and complemented Butterworths, the legal publisher in the United Kingdom, also owned by Reed. In 1991 Marquis Who’s Who, publisher of biographical directories, and the National Register Publishing Co., publisher of business directories, were purchased from the Macmillan directory division for US $145 million.
Davis became chairman of Reed in 1990. By the following year, thanks to Davis’s acquisitions, Reed had grown to become the third largest publisher in Europe, trailing only Germany’s Bertelsmann and France’s Hachette. Although 1991 sales were only slightly higher than sales when Davis took over, profits had increased from £100 million to £251 million.
Reed-Elsevier Joint Venture Formed in 1993
In 1992 Davis made his boldest move yet by engineering a “merger” with the Dutch publisher Elsevier N.V., which was the world’s leading publisher of scientific journals. At the start of 1993, Reed International and Elsevier were transformed into holding companies, each holding equalized stakes in a joint venture. To reflect Reed’s larger capitalization, Reed gained a 5.8 percent stake in Elsevier. Both companies held a 50 percent stake in the newly formed Reed Elsevier PLC, which became the parent company for all of Reed’s and Elsevier’s publishing businesses. Also newly created was Elsevier Reed Finance BV, which became the parent company for the companies’ financing and treasury companies. Reed International held 46 percent of Elsevier Reed Finance, and Elsevier held 54 percent. The Reed Elsevier joint venture immediately vaulted into the list of the top ten publishing companies in the world, with combined annual revenue of US $4.5 billion.
Tensions between the Anglo and Dutch partners surfaced since the agreement, and although the joint venture continued into the mid-1990s, Reed International and Elsevier had not formally merged. The most noteworthy dispute came in 1994 when Davis resigned in a power struggle won by the Dutch. Initially, Davis served as co-chairman of Reed Elsevier, along with Pierre Vinken, who was also chairman of Elsevier. Davis was slated to become sole chairman when Vinken retired in 1995. But the Dutch pushed for a collective style of leadership whereby the four-person executive committee (two from Reed, two from Elsevier) would manage collectively. When the board voted for the Dutch approach, Davis resigned and was succeeded as Reed International chairman by the second-in-command, Ian Irvine.
Meanwhile, Reed Elsevier concluded a couple of significant acquisitions. In 1993 Official Airline Guides was bought from the bankrupt Maxwell for US $425 million. The American market was targeted next. First, both Reed International and Elsevier had their stock placed on the New York Stock Exchange. Later that year, Reed Elsevier took a huge plunge into the online publishing world by acquiring Lexis/Nexis, which offered a number of online information services, from Mead Corp. for US $1.5 billion. The purchase instantly doubled the amount of Reed Elsevier revenue derived from electronic publishing from ten to 20 percent.
By 1995 Reed Elsevier operated four main publishing segments: Scientific, which included both scientific and medical offerings; Professional, which included legal, reference, and educational areas; Business, which included travel publishing, information services, and exhibition operations; and Consumer, which included magazines, newspapers, and books. The Consumer segment was the most troublesome of these and did not fit well with the other three segments. Much of the Consumer segment was put up for sale in 1995. Subsequently, newspaper businesses in the Netherlands and the United Kingdom and consumer magazines in the United States and the Netherlands were sold in five separate transactions for £751 million (US $1.1 billion). Reed Elsevier also attempted to sell Reed Consumer Books but could not secure an acceptable offer. Reed Elsevier planned to improve Reed Consumer’s performance, then attempt to sell it again.
Since its establishment, Reed Elsevier’s sales have continued to grow, reaching £3.65 billion in 1995, a 20 percent increase over 1994. Operating profits were improving as well, with the operating margin standing at 22.7 percent in 1995. As a result, Reed International faced a bright future heading into the 21st century. It was expected that Reed Elsevier would continue to grow, using the cash from the sales of the consumer properties to make additional significant acquisitions.
Reed Elsevier PLC (50%); Elsevier Reed Finance BV (46%).
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—updated by David E. Salamie