Re: Broker urges Reed Elsevier to gear itself up

["Janice McCallum" <janicemc@grandviewinsight.com>]

Chuck,

Here's my interpretation of the analyst's comment:  Private 
equity companies see an opportunity to further leverage Reed 
Elsevier.  PE companies target acquisitions where they can add 
more debt and use the cash generated from the recapitalizatio to 
fatten the returns to their investment fund.  Note, for example, 
that Springer has been recapitalized 3 times since they were 
acquired by Candover and Cinven.  These refinancings led to a 
160% return for Candover and its fund in a period of about 3 
years.

Bottom line, in the current environment with so much money in the 
hands of PE firms, companies are at risk of being acquired if 
they don't load up their balance sheets with debt.  There is a 
lot more to the complete story of how to increase RE's share 
price and market capitalization, but I read the analyst's comment 
as a warning that RE should "gear up" its balance sheet in order 
to fend off PE bids.

Regards,

Janice McCallum
President
GrandView Insight, Inc.
781.356.1766
617.529.2594 cell

www.grandviewinsight.com

----- Original Message -----
From: "Hamaker, Charles" <cahamake@uncc.edu>
To: <liblicense-l@lists.yale.edu>
Sent: Monday, April 16, 2007 10:24 PM
Subject: FW: Broker urges Reed Elsevier to gear itself up

http://news.independent.co.uk/business/analysis_and_features/article2442025.ece

> Market Report: Broker urges Reed Elsevier to gear itself up
> By Andrew Dewson
> Published: 12 April 2007
>
> "At first glance, there was nothing particularly exciting about
> Collins Stewart's latest "buy" note on the publishing group Reed
> Elsevier with a 667p target. However, the broker predicts that a
> private equity bid could value the shares at 85 per cent higher
> than yesterday's closing price of 619p, half a penny better.
>
> The broker believes the market has not fully appreciated Reed's
> attractions to a bidder, and highlighted a free cash flow yield
> of 7.2 per cent, stable revenue growth and margins as well as its
> leading market position. Collins Stewart adds that, with a
> current debt weighting of just 1.4 times earnings, Reed is
> under-leveraged and if it does not gear up its balance sheet
> "maybe private equity will do the job instead". The broker
> estimates at a debt multiple of 8 times earnings the shares could
> be worth up to 1,147p."
>
> Comment:
>
> The broker is saying, I guess, if someone bought Reed Elsevier it
> would be worth a lot more than current market valuation.
>
> Chuck Hamaker
> Associate University Librarian Collections and Technical Services
> Atkins Library
> University of North Carolina Charlotte