Twenty companies bid for the US legal publisher Martindale-Hubbell.
Reed International won and Peter Davis's price was right. By Chris Blackhurst.
Few company bosses enjoy the confidence of the City as much as Peter Davis, chairman of publishing group, Reed International. He is in that rare position of seemingly being unable to do any wrong. When he unveiled a slump in half-year profits recently, the City responded by pushing Reed shares up 33p. The reason for the buying was not the normal hope of a bid on the back of such dismal figures but Davis's accompanying remarks.
When he says that margins are going up, costs coming down and that there are early signs of recovery in the UK consumer sector, the market believes him. It is not hard to see why. Big, softly-spoken with an easy, relaxed manner, he comes across as everybody's favourite uncle.
Then there is his record. Five years ago, when he was appointed chief executive, Reed showed all the indications of becoming a corporate dinosaur. A collection of disparate businesses, ranging from paper mills, shower fittings, wallpaper and gas boilers to magazines like Horse and Hound and Country Life, it was making profits of just £100million from annual sales of £2.1 billion.
Davis came in and immediately launched the company on a £1.5 billion disposals programme. Everything bar the publishing division was sold.
But Davis has done a lot more than sell - he has bought as well. Four major acquisitions have transformed Reed into Europe's third biggest publisher behind Bertelsmann, the German giant and France's Hachette.
First, in 1987, came Octopus Books, the UK's largest books publisher, for £533 million. Next, he added TV Times for £123 million. Then came the Travel Information Group, a US travel guide producer, for £535.4 million and finally, Martindale-Hubbell, the US legal publisher, for £189 million.
The transformation has been reflected in the figures. Profits, on reduced turnover have more than doubled to £222 million.
Davis's early career gave little indication of what was to come. After leaving school, he spent five years working as a travelling salesman.
In 1965, he switched from sales to marketing at General Foods, 'for half the salary and no company car'. Nine years later, he joined Fitch Lovell as marketing manager. Then in 1976, he moved to Sainsbury. By the time he left, in 1986, he was a member of the troika that ran the company. But he wanted to run his own show. 'My contract would not allow me to go to another competitor, so it had to be a radical move.'
By chance, the headhunter he used was looking for a chief executive for Reed.
Typically, before formally taking up the reins, he spent six months touring the company's operations. By the time he took over, in November 1986, his mind was made up: Reed would concentrate on publishing.
For his best deal he looks to the four major acquisitions and chooses Martindale. For 10 years, Reed, through Butterworths, its UK legal publishing subsidiary, had been trying to buy Martindale-Hubbell. As publisher of The Law Directory the guide to the US legal profession, it was privately-owned and very profitable. But, 'it had never given any thought to going international or developing an electronic, on-line version.'
All Reed's efforts had come to nought. Then, in 1989, Martindale appointed a merchant bank to find a buyer. Details and invitations to put in sealed bids were sent to 20 companies, including Reed. The whole process went against Davis's natural caution. 'I always try to avoid entering a bidding contest but we had no choice.'
Without using a merchant bank he put in a bid and, against the likes of International Thomson, McGraw-Hill and Kluwer, won. A nerve-racking period followed until he discovered he had done the right thing. 'With sealed bids it is always difficult because you never know until it is too late if you have paid too much.'
Martindale fitted smoothly with Reed's existing legal publishers, Butterworths and RR Bowker in America. Martindale was moved out of New York- 'immediately staff turnover fell from 40% to 3%' - and merged with Bowker. The Law Directory is now being sold over here and has gone on-line world-wide. In less than two years, Martindale profits have more than doubled.
Davis need not have worried: the price was right.
Chris Blackhurst is City Editor of the Sunday Express.