Reed now merged with Holland's Elsevier, was a publishing monster which could not be seen to be standing still.
Wednesday 16 September was a nightmare of a day in anyone's books. But for Peter Davis, in the most glorious and ghastly of ways, it was doubly so. As interest rates yo-yoed and sterling plunged, the chairman and chief executive of Reed International was embroiled in last-minute talks that would set his company up as the third largest quoted publisher in the world.
"It was fraught, exciting," Davis puffed over the phone the next day. "We were working on the final points and the markets suddenly changed significantly." Finally, at 1.15 am the deed was done. Under the lamplight in the marble-lined Mayfair headquarters of Reed, Peter Davis signed his name next to that of Dutch publisher Elsevier's deputy chairman, Lock van Vollenhoven, and the two companies merged in to the £5.2 billion Reed Elsevier.
As a partnership it could not look much sweeter: the strengths of Reed in UK consumer magazines and in international business publishing fit handsomely with Elsevier's weighty interests in scientific journals. Without a pound note changing hands, Reed Elsevier has been launched on to a global stage.
"I'm very excited about it," says Davis. "We have always been very keen to get bigger in Europe and we knew we might have to do it with an alliance. Elsevier is in businesses we have wanted to build - information and professional publishing - and because it relies more on subscriptions it is quite attractive."
Although Elsevier chief Pierre Vinken will hold the Reed Elsevier chair until 1995, it is Davis, as chief executive, who will steer the merged group. It will mean a higher profile for Davis, and perhaps even a turning point in his career. Maybe - just maybe - people outside publishing circles will finally know who he is. For though this British media magnate has picked up businesses worth £2.5 billion in the past six years, hardly a man in the street today would know his name or face.
The products of this quiet giant of a company are, mind you, another story. TV Times, Woman's Weekly, New Scientist, Country Life, Marie Claire or one of their stablemates are read by three out of four British adults, while reference works by Butterworth-Heinemann and Macmillan weigh down many a bookshelf. Every day a Reed regional newspaper is dropped on the doorstep of nearly one English home in three, while Reed exhibitions and its travel and information arm serve millions worldwide. Reed, in short, even without the merger is a monster in the publishing field.
Getting to its enviable position of today has been a hectic experience. The one-time paper maker, born 100 years ago as Albert E Reed, only moved into publishing, as Reed International, in 1970. Until then most of its income came from paint, newsprint, cardboard boxes and bathroom fittings. The metamorphosis was initiated in 1970 by chairman Lord Ryder with the £115-million purchase of IPC, giving Reed control of the lucrative Mirror Group Newspapers. Eight years later, losses and high debt forced the then chairman, Sir Alex Jarratt, to strip down the ungainly paint-to-publishing conglomerate, and in 1984 the union-ridden Mirror group was dropped into the snapping talons of Robert Maxwell.
It was only after Davis's arrival in late 1986 that the whole group shifted to a healthier plane, focusing strictly on the higher margin, less cyclical, high cash flow publishing business. Everything to do with DIY and paper was sold, and £2.5 billion spent on buying groups like Octopus (publisher of The Silence of the Lambs), Murdoch's Travel Information Group and the US-based Martindale-Hubbell law directories. The shift has seen Reed come through the recession with impressive stamina and a 4% rise in pre-tax profit to £232 million this year.
The merger with Elsevier now sets Peter Davis up to pursue the third leg of Reed's transformation - the making of a global publishing company. Under the new structure a Reed Elsevier board will oversee the combined assets of the group. The parent company will be 50:50 owned by Reed and Elsevier, each of whom still retain their separate boards and public listings in London and Amsterdam. In recognition of its larger size, Reed will take a stake of something under 11% in Elsevier. As the world's leading publisher of English language scientific information, with about 1,000 journals worldwide, Elsevier considerably broadens Reed's scope. It also takes Reed more firmly into the US, Europe and Japan, and adds the spice of two national Dutch newspapers, a real estate information group in the US and a foothold in Eastern Europe. Clearly the hard work - and the rewards - are only beginning. Peter Davis, in a crumpled blue shirt and yellow-checked tie, sinks into a chair, looking anything but worried about the job ahead.
"I think our development is very much a combination of small - and now medium-sized things - adding up," the chairman says. "IPC Magazines going into France, Germany and Italy may be quite small movements in themselves, but over time it makes a significant difference. And there are a number of areas where I hope some of the developments will become quite big." Could he say which ones? A huge laugh erupts. "No, no, no. Wouldn't dream of doing so." Then he adds judiciously, "For competitive reasons and because you're foolish to forecast."
One could guess that one of the livelier projects being groomed is the electronic publishing side. Both Reed and Elsevier are pushing aggressively into this virgin realm where soft discs, pictures and sound carry hard information around the globe. At Elsevier the emphasis is on scientific data. At Reed the telepublishing arm provides on-screen ariline booking services worldwide, plus electronic publishing and financial data services. The attraction is plain: telepublishing contributes just 15% of Reed's revenue, yet 25% of its earnings.
Another much-gossiped about leap the new Reed Elsevier could make would be to bid for the major US airline booking company, the Robert Maxwell-orphaned Official Airline Guides. Davis passed up OAG back in 1988 when Maxwell bid an astronomical $750 million for it. S G Warburg media analyst Lorna Tilbian figures Reed could now pick up OAG for less than the $450 million it bid then.
However, Reed finance director Nigel Stapleton, an engaging man with a formidable memory, insists, "We are not so immensely attracted to OAG that we have to win the auction for it. We will bid what we think the property is worth." Meantime, the merger no doubt will be embraced by shareholders who - after a gloomy forecast from their chairman in June - have been feeling a mite grim. It may even have been the hope of cheering them up that made the board agree this year to raise Reed's dividend by 6.7% - even though profits would have been marginal but for a £9-million pension credit. Reed may not have been alone in buttering up its backers, but in a more controversial move the board also agreed to an incentive scheme granting free Reed options, worth up to £630,000 on recent prices, to six directors if the group performs well. For some in the City this left a bad taste. An options scheme, fine, but normally they are not free.
For the Reed staff who have seen 9% of their colleagues disappear in the last two years, these two decisions went down, as one staff member put it, "like a cup of cold fig". On the surface, at Reed's headquarters off Curzon Street, and across the river at IPC's Kings Reach Tower near Waterloo, all might appear bright and busy. But Reed's aggressive cost-cutting has taken its toll. This spring an in-house survey showed fewer than one in five IPC employees thought morale was "high" and only one in 10 had confidence in executive decisions. A different view is put by the spokesman nominated by Reed's public relations office. Michael Clayton, who is the editor of 66e Horse and Hound, says communications are improving "enormously". Staff now are involved in cost and quality control "focus teams", while a steering committee of editors meets regularly with the board. "The old image of the Ministry of Magazines is swept aside," he says, seated calmly beneath a portrait of one of his regular readers - the Queen Mother. "It's very much cut-and-thrust between the main board and the editorial steering group."
If one still hears criticisms of Reed management being heavy-handed, it is probably to do with executives other than the chairman. Peter Davis objects to any description of himself as a "soft" manager, but clearly he is well liked. Colleagues, to a man, describe him as "open", "people-oriented" and a "collegiate style" leader who lets his senior managers get on with it. Even competitor Terry Mansfield, UK managing director of the National Magazine group (Cosmopolitan, Good Housekeeping), describes Davis as "a joy". "He was at Sainsburys before, but he loved magazines so much that he gave up a real job and came and joined us," Mansfield quips.
Davis's ascent from travelling salesman at 18, to assistant managing director of J Sainsbury at 37, and then to chairman of Reed at a youthful 44, has proved an effective, if unorthodox, career path. It has given Davis a clear eye for the consumer's demands and the ability to stimulate a fighting spirit in his managers.
The team's first big challenge came in 1987 when Reed's stable of women's magazines, including Woman's Weekly, Woman and Woman's Own, were threatened by sudden cut-price launches of Best, Bella and Prima by the Germans. IPC hit back with launches of the busy woman's Essentials and Me. In the tussle that followed Reed's share of the weekly women's market dropped from 70% to 50%, but Essentials has now whipped past Prima in circulation and been launched in 11 other countries.
The second Waterloo seemed imminent when Reed paid £113 million for TV Times just before deregulation of television listings. The German Bauer group swooped in with TV Quick (cover price 10p) cutting a swathe through the market. Reed countered with a 10p What's on TV, spending £15 million in the ensuing battle. By last year Reed had re-secured 52% of the listings market.
Not that all has gone well. Some believe the group paid too much for its Octopus books arm, purchased in 1987 from Paul Hamlyn for £533 million at 20 times earnings. Others have wondered if the dilution of Reed's share of British Sky Broadcasting last year was the best thing. Reed dropped its share from 10.5% to 3.7% during a cash call - just before BSkyB turned its first operating profit.
Nonetheless few would deny that after six years at the helm, Peter Davis must be allowed a little unseemly pride. In his term Reed has reduced its vulnerability to business cycles and lifted margins from 9% in 1986 to near 17% today. The merger with Elsevier further enhances the picture, spreading sales more evenly over the UK (32%), US (34%), Europe (22%) and the rest of the world (12%). It also pulls Reed away from dependency on the volatile advertising scene with 44% of revenue to come from subscriptions, circulation and books, 37% from advertising and 18% from other sources.
Davis names his current goals as: "to be much more significant in Europe and Asia Pacific, to be more electronic and", he breaks into a large smile, "to establish an impeccable record of growth in earnings - because that's the one thing we haven't done yet." One sure boost to the bottom line will come from the still awaited revival in advertising. Beyond that, Reed can still put its paperbound works into electronic format, expand its exhibitions and transfer US, UK and Dutch magazine titles to the Continent.
The man shouldering the ticklish task of breaking into the Continental publishers' homelands for Reed is Reed Publishing Europe chief executive John Mellon, a vigorous Irishman said to instil fear in his publishers. Still undampened in his enthusiasm after 21 years with Reed, Mellon readily admits that IPC consumer magazines, with 40% of the UK market, is in a saturated marketplace.
"Of course it is saturated. The point is, we recognise that, and so to get new products in the market you have to build in added values." At home IPC is doing this, for example, by inserting dress patterns and tear-out recipes in Essentials. Mellon is also finding fresh niches, recently launching Soccer Stars and Auto Market.
In Europe, he says, "the emphasis is on either acquiring or building businesses, but if the circumstances are right for a joint venture we may do some more of those as well." Currently IPC has two joint ventures in France with Groupe Marie Claire.
This year IPC also set up its own operation in France. "We're actively seeking acquisitions and looking at our portfolio to identify those titles which can transfer into France." Which these might be, Mellon declines to say. Reed has also taken its telemarketing services into Portugal and Spain after three years of runaway success in the UK. These are the 0891 telephone services that one can ring for a horoscope, sports update or medical advice. Telemarketing went to profit in Portugal in just three months and as a group delivers margins of 35%. "Our finance director says if we could run a few more businesses like this he'd be an extremely happy man," Mellon beams. He is now linking the 0891 service with Reed's regional newspapers so that the lovelorn will not only be able to turn to the personal pages for a pithy description of a potential mate, but be able to dial up and hear a recording of the person's alluring tones. Sexy stuff indeed. And perhaps it is the potential for this kind of cross-marketing as well as for ferrying quality titles - both Dutch and British - across borders, that make the chairman so relaxed about the stint ahead.
"People say why don't you go and buy the Mirror back again," Davis groans. "But that would make us more UK-based and more advertising-based. The great thing now is that we are in a strong financial position, and not too dependent on any one business, and the hatches are battered down in operating terms." The formula that transformed Reed, says this media mogul, was one of being "both aggressive and defensive".
Indeed it was the latter that most explains the survival of Reed through recent bearish times. And with one gallant leap into bed with the Dutch, the chairman has proved he will not shy away from the former.
For reprints of this article, contact Anne Oakley (071) 413 4336.