Reed Elsevier drops trade magazine sale

Reed Elsevier withdrew its proposed sale of its Reed Business Information trade magazine arm amid deteriorating trading conditions and the subsidiary's sharply reduced valuation.

The RBI sale, one of the few live auctions in the media sector, was being watched closely as a bellwether for companies' ability to dispose of assets and private equity's ability to get deals done in tighter credit markets.

Indications of interest for RBI, whose titles include Variety and New Scientist, fell from £1.3bn to £650m and were heading lower, according to two people familiar with the deal, as the economy weakened and RBI's trading outlook deteriorated.

Bain Capital and Apollo private equity firms were still in talks with Reed earlier this week but Bain was understood to have been increasingly sceptical about a bid. TPG pulled out of the auction last week.

Negotiations are understood to have come unstuck over the deal's debt-to-equity balance as well as on price. The Anglo-Dutch group had originally offered $330m in vendor financing as well as $1.2bn in staple financing to sweeten the deal. Staple financing is a pre-arranged debt package offered to potential bidders in an acquisition.

Sir Crispin Davis, who retires as chief executive of Reed Elsevier next year, said: "In two to three years' time, and given reasonable economic conditions, we should sell this at a better price."

Proceeds from the sale of RBI were expected to pay debt following the group's £4.1bn acquisition of ChoicePoint, an insurance industry service provider.

Reed has about $5bn (£3.4bn) of debt to refinance before 2012 and must repay $2bn of ChoicePoint acquisition financing in March 2010 and $2.2bn a year later. Reed's $3bn committed back-up bank lines expire in May 2010.

One analyst said: "This is just about the worst outcome for Reed, which has not only failed to sell RBI but now has £1.3bn less of cash to refinance its debt than it had planned when it bought ChoicePoint."

Alex Griffiths, senior director in Fitch's EMEA team, said Reed, which has one of the most onerous refinancing schedules in the media sector, could see a liquidity gap in 2010, though it would still be able to fund the repayment out of pre-dividend free cash flow.

The company declined to give operating profit forecasts for RBI next year but said the business, which accounts for less than 10 per cent of Reed Elsevier, was "challenging".

The shares, which have fallen 20 per cent over the past 6 months closed on Wednesday 3.3 per cent lower, or 16.7p, at 478p.

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