New Chief Executive Appointed for Struggling Reed Elsevier, as Lower Earnings are Reported
Paula J. Hane
Posted On August 9, 1999
Following nearly a year-long search, Reed Elsevier finally has announced the appointment of a new chief executive officer. Crispin Davis, the chief executive of Aegis Group plc, a media buying company, will take the helm of the Anglo-Dutch publishing company on September 1. Davis takes over from co-chief executives Nigel Stapelton in London and Herman Bruggink in Amsterdam, who operated under a shared power arrangement and who will both be leaving in September.
Reed Elsevier is a large and complicated company whose various business units and subsidiaries employ over 26,000 people—many times larger than Aegis with its 3,500 employees. Davis was appointed not only the new CEO of Reed Elsevier PLC, but also CEO of Reed International PLC and chairman-designate of the executive board of Elsevier NV, its two parent companies. Since the 1993 merger of Reed and Elsevier, the mega-publishing powerhouse has grown rapidly through acquisitions, but has struggled with its cumbersome management structure, heavy competition from the Internet and new media, lagging profits, and restless investors.
The company seemed to be stalled, hampered by the lack of a strong single leader. Much negative buzz was generated last year when a proposed merger with Wolters Kluwer fell through, and speculation and tension increased as the search for a CEO dragged on—described in the media as "painful and protracted." Rumors were rampant that most of the likely candidates in the publishing industry had turned down the job, especially after talks with a leading U.S. book publishing executive broke off.
News of the appointment was greeted mainly by great relief, but also by surprise at the choice of someone with no publishing experience, and concern at the magnitude of the task facing Davis. As The Times of London described the company, "It is an international organisation operating in scores of different countries and dozens of product areas, and has a bureaucracy to match." But The Times also said that Davis is known as "Lazarus in the marketing world for his role in bringing Aegis back from the dead."
The press release from Reed Elsevier described his role at Aegis as follows.
"Crispin Davis has been Chief Executive of Aegis Group plc since joining the company in 1994. Under his leadership the market capitalisation has grown from £180 million to approximately £1.5 billion. When Mr. Davis joined the company it was in considerable difficulty and he was appointed to implement a restructuring programme and restore the company to growth. His strategy included the recruitment of a new management team, a programme to cut costs and a new growth strategy that has achieved consistent profit increases. The long-term results of Mr. Davis's leadership have seen Aegis extend its products and services into higher value added activities and new markets. The company was also repositioned from a European to a global business, acquiring and developing businesses in the USA and Asia Pacific."
Prior to joining Aegis, Davis was at Guinness PLC from 1990 to 1993. The first 20 years of his career were spent at Procter & Gamble, where his marketing and general management roles included U.K. marketing director, managing director in Germany, and vice president in the U.S. responsible for the company's North American Food business. The Financial Times noted that he was credited with "establishing the Pampers brand of disposable nappies as a market leader."
The chairman of Reed Elsevier, Morris Tabaksblat, said: "I am delighted Crispin is joining us. He has an outstanding track record of building businesses. His proven leadership and international marketing skills ideally suit him for the position. His appointment as chief executive cements the simplified management structure which we have put in place to take the company forward."
Davis said: "Reed Elsevier is a tremendous business. Despite some recent difficulties, it has a portfolio of excellent brands with strong market positions. I very much look forward to working with my new colleagues at Reed Elsevier to develop and implement strategies to drive future growth."
A company spokesperson said that Davis had no further comments at this time. The company plans to conduct a strategic review that is expected to take about 6 months. There's a lot to review. The company's business units include Elsevier Science, LEXIS-NEXIS, Reed Technology and Information Services, Reed Exhibition Companies, Cahners Business Information, Elsevier Business Information, and many others.
From diapers to drinks to advertising ... Davis has a successful track record with companies. However, he will have a tough job at Reed Elsevier. It will be more than making the transition to scientific and legal publishing. He will have to unite the two parent companies under strong leadership, steer a difficult course through some stiff competition, and compete as an Internet publisher.
Earnings Report Released
Shares of Reed and Elsevier rallied at the news but dipped back down the next week as enthusiasm subsided. Then, on August 5, two weeks after the Davis announcement, Reed Elsevier announced its half-year earnings, and shares dropped to near the year's low. The company reported that its adjusted pre-tax profits were "11 percent lower than in the comparative period at constant exchange rates." Tabaksblat commented: "Reed Elsevier is a business with an excellent heritage and undoubted potential. But, it is not performing as strongly as it should do at a time when it needs to respond quickly to challenges and opportunities in its markets. With focus and unified leadership, we intend to address these issues and restore the business to growth."
He noted that the "first half of 1999 has been adversely affected by the less favourable market and competitive conditions that we noted in the second half of 1998," and investments in the business. He then pinpointed the main problem areas. "Revenue growth has, however, been disappointing, particularly at LEXIS-NEXIS and Cahners, with consequential impact on profit." Operating profits were 17 percent lower at LEXIS-NEXIS, and 45 percent lower at Cahners Business Information. Given the "revenue development and cost trends in the business," he said the second half of 1999 "is unlikely to see growth in adjusted pre-tax profits over the corresponding prior year period."
Not a rosy picture. But Tabaksblat promised that by March 2000 the company would announce a plan of action to "realise the growth potential of the business." LEXIS-NEXIS is already restructuring and working harder to compete, especially on the legal front (note the recent announcements about Lexis Publishing and Lexis.com). Cahners Business Information has announced a restructuring plan and will cut about 300 employees.
Reuters news service has since reported that Goldman Sachs downgraded Reed and Elsevier to "underperform" from "perform" after disappointing results. Goldman said it would take at least a year before the group's businesses could be set on the road toward stabilization.
Results for one of their competitors, The Thomson Corporation, were also announced on August 5, and stood in contrast to Reed Elsevier's. The Toronto-based company reported increased revenues and earnings in the first half of 1999. Sales of the Legal & Regulatory group—which includes the West Group, nemesis to LEXIS—increased 11.2 percent and operating profit increased 20.9 percent. The report stated, "Strong new and renewal sales in U.S. legal information led the improvement in profits and operating margins."
Looks like customers might win, as this ongoing battle for legal and business information market share pushes companies to offer better products at lower prices. The Internet continues to force changes in the business models for publishing and information delivery. Survival in the information industry will depend on how quickly a company can respond to the dynamic market forces. Strong leadership is a start.