ProQuest Information and Learning (PQIL; http://il.proquest.com), the bulk of ProQuest Co. (http://www.proquestcompany.com), and one of the nation's oldest and largest database aggregators has been sold to Cambridge Information Group (CIG; http://www.cambridgeinformationgroup.com). The acquisition will result in the creation of a new, privately held company (yet to be named) that merges the operations of PQIL and Cambridge Scientific Abstracts (CSA: http://www.csa.com). Both the Ann Arbor, Mich., operation of PQIL and the Bethesda, Md., operation of CSA will continue in their current locations. Driven partly by financial pressure from continuing debts connected to past financial irregularities, the acquisition should provide the publicly held ProQuest Co. (NYSE:PQE) with approximately $222 million. Martin Kahn, the longtime executive for a number of traditional database services, will serve as CEO of the new company and will move to Ann Arbor. Matt Dunie will expand his current presidency of CSA to presidency of the new company.
In more recent years, Kahn (formerly head of BRS Information Technologies, Ovid Technologies, and OneSource Information Services) has served as consultant and director on the board of a number of venture capital firms, such as Rho Ventures and Cadence Information Associates. As to what extent financing for the acquisition came from those firms or others, Kahn said that we will have to wait until the closure of the sale, estimated to occur in mid-January, for more details. As for his personal commitment, Kahn said that he was already looking for a house in Ann Arbor.
David "Skip" Prichard, current president of PQIL, will remain head of the organization until the deal closure and will contribute to the transition before pursuing new opportunities. Prichard saluted the acquisition: "Both companies have a strong heritage, a deep sense of responsibility to the materials we present and an obligation of excellent service to the communities we serve." Prichard seemed very comfortable with the personal transition as well.
Founded in 1971, privately held CIG has more than 500 employees worldwide in its operating companies, which include CSA, R.R. Bowker, and RefWorks, plus an art industry educational institution, and a majority share in an airline software service. CSA currently publishes and distributes more than 100 bibliographic and full-text databases in the natural and social sciences, arts and humanities, and technology on its CSA Illumina platform. It reaches more than 4,000 libraries and institutions worldwide. In announcing the acquisition, Andrew M. Snyder, president of CIG, said: "Combining ProQuest's unparalleled collections with CSA's own rich content will enable us to further build upon our mission of delivering an exceptional research service. The new company will leverage deep content sets with a history of innovative product development to bring the community of libraries, researchers, faculty and students one of the most extensive electronic resources available."
Founded in 1938, PQIL has about 1,000 employees, according to Prichard. Based on agreements with more than 9,000 publishers worldwide, PQIL carries periodicals, newspapers, out-of-print books, dissertations, and scholarly collections in various formats. Its archives include more than 5.5 billion pages of information, spanning 500 years of scholarship, in formats that range from print to microform to digital. PQIL's extensive full-text and full-image files cover business, economics, general reference, genealogy, the humanities, and the social sciences, as well as scientific, technical, and medical content.
Product lines from ProQuest included in the acquisition include more than 40 literature reference sources from U.K.-based Chadwyck-Healey, the UMI microform collection, ProQuest Digital Dissertations, and ProQuest Historical Newspapers, covering nine leading U.S. newspapers back as far as 1764. The acquisition will also encompass Serials Solutions, a leading management and linking service for electronic journals. CIG already has the Ulrich's Serials Analysis System from its Bowker subsidiary. The acquisition also includes the Canadian search service, Micromedia ProQuest (http://www.micromedia.ca).
The ProQuest Co. will retain Voyager Expanded Learning, ProQuest Learning Page (Reading A-Z), and ExploreLearning as part of its ProQuest Education service. However, three products targeted at the K-12 market—SIRS, eLibrary, and CultureGrams—will go to CIG with PQIL. Kahn and Prichard explained that the education products that ProQuest Co. retained were focused on classroom and teacher-aid products, while the services going to CIG were more for libraries and curricular research. ProQuest Co. executives were unavailable for comment.
Whither the New Company?
None of the parties were ready to discuss new product plans or marketing strategies. Besides the fact that they simply haven't had time to reach such discussions, federal regulatory processes would make it indiscreet to publicize any such efforts.
Bette Brunelle, vice president and lead analyst at Outsell, Inc., a leading information industry consultancy, predicted that the company would integrate product lines over time and focus on growth. She expected they would first integrate sales operations—"that's the usual approach." Another observer with whom I spoke agreed: "It's early days, but the first thing CSA will do is to try to extract efficiencies and eliminate duplication, before it starts working on products."
Though CSA is much smaller than PQIL, Brunelle considered the merger "strategically a good fit. Both are strong in the academic market with CSA more in the sciences and PQIL more toward social sciences and humanities. The overlap in content is small. So they're selling to the same market with different content. All the full text in PQIL is very important to CSA. The vast majority of their collection is abstracting and indexing services. They need more full text. In general, CSA has pretty good product development and PQIL [has] pretty strong content. I assume they will take an aggressive product development focus with a hard look at everything."
CIG is scheduled to launch its new CSA Illustrata service in early January. This service lets searchers retrieve charts, graphs, illustrations, plus captions for articles and documents. The acquisition of a huge collection of article images could open up a range of new opportunities, according to Diane Hoffman, senior director of life sciences at CSA Guide to Discovery, especially in the medical area. (Marydee Ojala will report on CSA Illustrata in a future NewsBreak.)
Industry observers looking at the sale wondered whether (or when) CIG and whatever financial partners it had involved in the deal would start to sell off PQIL product lines. One observer, however, urged us to look at CIG's history: "They never sell things off. Anything they have acquired in the past, they still have." Marty Kahn stated that they were not expecting to sell off portions of the new company. "The way the deal is structured financially," said Kahn, "there is absolutely no requirement to. It's not a leveraged buyout, where you must sell assets. That's not the case here at all. As far as we know, the PQIL units fit together nicely. Management did a sensible job of assembling in its acquisitions and divestitures—very thoughtful." On the other hand, Kahn also added that it was "not impossible that in a year from now we will decide to divest something, but we're not going in with that expectation or financial imperative."
Dunie, future president of the new company and current president of CSA, focused his interest on end-user services. "The amount of users out there for all this content is exponential," said Dunie, "as compared to intermediated searching. All different types of researchers. I can't wait for it to take effect."
PQIL certainly went down swinging. Prichard pointed out that ProQuest's financial results released the same day as the acquisition announcement showed that PQIL had turned the business back to profitability. Over the past year, Prichard said, PQIL had launched 23 new or improved products (including historical Annual Reports, ProQuest Obituaries, and ProQuest Accounting & Tax with Standards) as well as enhanced its products across its product lines. He assured customers that "all of your contracts, license rights, and account balances will be intact" under the acquisition.
Last week, PQIL announced that it will launch ProQuest One Click searching at the ALA Midwinter meeting, a product the enthusiastic Prichard saluted as "revolutionary." (Serials Solutions subscribers already using a ProQuest platform product had access to the service on Sunday, Dec. 17.) Jill Grogg, electronic resources librarian for the University of Alabama and frequent contributor to Searcher on linking and licensing issues, took a quick look at the new service. She commented that it did offer a major improvement by prechecking in advance whether a full-text article is available through the link resolver, instead of putting the user through time-consuming, useless steps. Although the service currently works well only with Serials Solutions, the PQIL subsidiary, Grogg said that staff told her they were negotiating with Ex Libris' SFX link resolver and others.
What's Left of ProQuest Co.?
Regardless of whatever future the new company will have—and everyone wishes it well—there is little doubt that negative financials drove the sale by ProQuest Co. In August, an independent Audit Committee concluded its investigation of the "accounting irregularities" revealed in February. (See Paula Hane's NewsBreak, "ProQuest Reports Completion of Audit Committee Investigation," http://newsbreaks.infotoday.com/nbReader.asp?ArticleId=17326.) In October, the company sold off its ProQuest Business Solutions automotive and power equipment data services to Snap-on, Inc. The transaction totaled about $527 million ($508 million in cash and $19 million in debt assumed by Snap-on). About $475 million went to pay down ProQuest's $532 million in debt.
A business update announcement accompanying the agreement with CIG should, according to Alan Aldworth, CEO of ProQuest Co., "significantly improve ProQuest Co.'s capital structure." The company expects final cash proceeds from the transaction to be about $195 million, of which it plans to pay about $150 million to its debt and make its first quarterly tax payment (about $50 million). Problems may not be over, however. The announcement stated: " The company has completed a significant amount of work on its restatement. However, several items remain open and will require additional work before the company can complete its review and finalize the results. In addition, KPMG's ongoing audit of prior periods is not complete and there can be no assurance that additional issues will not be identified. As a result, the company now expects that it will not file its restated consolidated financial statements, in the form of the 2005 Annual Report on Form 10-K, until the first quarter of 2007." Observers noted that the KPMG audit has spread to business units not involved before.
The burden of completing the restatement falls on ProQuest Co., as was made clear in announcements from both PQIL and CIG. On the day of the announcements, ProQuest Co. stock dropped to a new low: about $10 per share. The business update also indicated that the New York Stock Exchange has informed the company that it will initiate suspension procedures if the company has not filed its Annual Report on Form 10-K for 2005 by April 2, 2007. (For more details, read the announcement, "ProQuest Provides Update" at http://phx.corporate-ir.net/phoenix.zhtml?c=93447&p=irol-newsArticle&ID=942638&highlight=.)
Regardless of all the hassle about PQIL's "accounting irregularities," Kevin Norris, PQIL's legal counsel, pointed out that "nothing in the restatement indicates that any customer paid for something they didn't get or had their accounts compromised. Every vendor or partner were paid what they deserved. Publishers got paid appropriate amounts. Fundamentally publishers and customers were not damaged." Prichard added: "What matters is the future and the strength of where PQIL is positioned in terms of the merger. If we look forward, we see two world class organizations with a wider portfolio and greater financial flexibility to continue to develop new products and serve customers."
To Whom It May Concern
As for other partnerships and outlets, e.g., Factiva, Dialog, and LexisNexis, Dunie saw "no reason to make big changes right now." Nor did he see any immediate changes in ProQuest Archiver's links to publisher Web sites, such as the ITI InfoCentral service (http://www.iti-infocentral.com) from Information Today, Inc. Even microform may stay in play. Kahn observed that "microform has a solid core market and, as long as it makes sense for a reasonable number of people, we'll stay with it."
One firm closely tied to PQIL—National Archive Publishing Co. (NAPC; http://www.napubco.com)—seemed confident that the new arrangement would work out for them. Former PQIL executives spun off NAPC and took over UMI Periodicals in Microform, XanEdu, and PQIL's microfilm and digitization service operations. Dan Arbour, CEO of NAPC, congratulated the two merger partners and stated: "Upon completion of the agreement, we look forward to working closely with the management team at Cambridge Information Group within our existing long-term manufacturing agreement to provide services for both microform and digital products."
Other observers commented that the bargain price CIG paid for PQIL—though Norris described the price as "fair"—might have an impact on the price bidding for Thomson Gale, a longtime competitor to PQIL, which has gone on the block along with its parent, Thomson Learning. Estimates for what The Thomson Corp. wants for Thomson Learning run as high as $5 billion. However, Thomson hopes to sell Thomson Learning as a unit, and Thomson Gale reportedly constitutes a strong revenue maker within that unit.
More to Come
This is just the beginning of the story. We will continue to cover developments as they occur. Stay tuned.