Reed International P.L.C.

views updated

Reed International P.L.C.

Reed House
6 Chesterfield Gardens
London W1A 1EJ
United Kingdom
(071) 499 4020
Fax: (071) 491 8212

Public Company
Incorporated: 1903 as Albert E. Reed & Company Ltd.
Employees: 18,700
Sales: £1.58 billion (US$3.05 billion)
Stock Exchange: London

Originally a paper manufacturer and later a conglomerate, Reed International is now a publishing and information group. This latest transformation was completed only in 1988, after the sell-offs of the company’s manufacturing interests balanced by the acquisition of several publishing businesses. Reed is therefore in the odd position, for a long established company, of having acquired all its present interests since 1970. Its new publishing empire includes magazines, newspapers, books, and electronic information systems. Reed claims to be the largest publishing group in the United Kingdom and is also strong in the United States.

The beginnings of the company go back to 1894, when Albert Reed bought Upper Tovil paper mill at Maidstone, Kent. He was then 48 and already successful in paper manufacturing. After going into the paper business as a boy he had become a manager, and then part owner, of a number of paper mills in different parts of the country, but Upper Tovil was the first which was entirely his. It had been badly damaged in a fire when he bought it, so he was able to install new machinery before reopening it.

Over the years Reed had experimented with different materials and machinery to produce types of paper suitable for the half-tone blocks which were then being introduced. At his new mill he specialized in these papers, and soon built up a good trade with the publishers of illustrated magazines. Within two years he had over 100 employees and installed a new machine. When Upper Tovil had been expanded to its limit, Reed bought other mills, owning seven by 1903. In that year the business was incorporated as Albert E. Reed & Company Ltd., to enable more capital to be raised.

One of the firm’s best customers in its early days was the publishing business of Harmsworth Brothers. This connection chiefly fueled Reed’s growth from 1904 onward. Alfred and Harold Harmsworth, shortly to become Lord Northcliffe and Lord Rothermere respectively, had built up the most dynamic publishing business in London. Only 15 years after launching their first magazine, Answers, they controlled a string of magazines and newspapers including the successful Daily Mail. They had one failure, however, a new paper aimed at women, called the Daily Mirror. To save it they decided to relaunch it in 1904 for a general readership as an all-picture paper, using a new grade of fine newsprint introduced by Reed. In this form the Daily Mirror became a success, and the Reed paper business grew with it. By the outbreak of World War I in 1914, the Daily Mirror was the largest selling daily newspaper in the world, and Reed was supplying the newsprint not only for that but also for several national newspapers. The company took over more paper mills in the United Kingdom and invested in pulp mills in Norway and in Newfoundland, Canada.

World War I put a temporary stop to Reed’s growth. Supplies of pulp from Scandinavia were cut off, newspapers became smaller, and Reed was forced to close some of its mills. At the same time the Newfoundland venture proved uneconomical. Reed sold it to his friends, the Harmsworths, who were developing their own pulp mill nearby.

Soon after World War I another financial crisis was precipitated by Albert Reed’s death in 1920. His twin sons, Ralph and Percy, were determined to carry on the business, but a large sum had to be found to pay the duty on their father’s estate and in any case some members of the family wanted to turn their shares into cash. Once again, the Reeds turned to their largest customer. Lord Northcliffe had died, but Lord Rothermere agreed to buy a large block of shares in Reed, through the Daily Mirror and Sunday Pictorial companies, which he now controlled. The Reed brothers still had voting control, but Rothermere’s holding of around 40% of the equity rendered him a major influence in its affairs. He seems to have made little use of this influence, having had many other business commitments, but half a century later this shareholding was to change the nature of Reed’s business.

The Reed brothers began to implement the plan for the company which their father had conceived during the war. This was to sell their remaining overseas operations and most of their U.K. mills, and concentrate their resources on a single, modern plant, using the largest machines available. In this way they hoped to undercut all competition. A site was selected at Aylesford, a few miles down-river from Tovil, and the new mill began production in 1922.

The new strategy worked well. Despite the Depression the Aylesford plant was steadily expanded, and by 1939 was the largest of its kind of Europe. Newsprint remained the company’s chief product, but from 1929 onwards Reed also made kraft paper from which it produced corrugated board and paper sacks. With these new products the company captured a large share of the packaging market.

During World War II production had to be drastically reduced due to lack of pulp, and did not regain prewar levels until 1950. The next few years were a boom period for Reed. The company added to its newsprint and kraft manufacturing capacity, expanded into new forms of packaging, entered the paper tissue market in a joint venture with Kimberly-Clark, and invested some of its profits in pulp mills overseas. Within seven years Reed’s work force doubled to 14,000.

However, in the late 1950s, conditions changed for the worse. First the government put an end to the price-fixing arrangements which Reed had with other paper manufacturers, and then to the tariffs which had shielded the U.K. paper industry from Scandinavian competition. This latter change was the result of U.K. membership of the European Free Trade Area and was to be introduced over several years, but its implications were clear from 1959. Without the tariffs, newsprint and kraft made from imported pulp would be unable to compete with Scandinavian products. Reed would have to make major changes.

It was unfortunate that the company had to face this crisis with a relatively untried management. Sir Ralph Reed had retired in 1954, ending the era of family control, and his most able colleague, Clifford Sheldon, had died a few years earlier. The new chairman, Lord Cornwallis, and managing director, P.G. Walker, both came from outside the paper industry. They took prompt steps to reduce the company’s dependence on imported pulp, but could not prevent a slide in profits. In 1960, the company’s largest shareholder decided to intervene.

This was no longer Lord Rothermere, who had sold his shares in the Daily Mirror in the 1930s, but a new group which had been created from the nucleus of the Mirror. The latter paper and the Sunday Pictorial had declined in the 1920s under Rothermere’s ownership but had recovered under his successors. In the late 1930s a new team led by Guy Bartholomew and including Cecil King, a nephew of Lords Northcliffe and Rothermere, had completely restyled the two papers. Now they were aimed at younger, working-class readers. By a mixture of populist style and radical campaigning on social issues, they captured most of this market during the unsettled war years, and increased their hold on it in the more prosperous times that followed. The combined circulation of both papers rose from around one million in the 1930s to more than five million in the 1960s.

From the large profits which flowed from this success, Cecil King, who became chairman in 1951, began to build a broad-ranging publishing group. It bought further newspapers, in Scotland and abroad, and a stake in one of the first commercial television companies in the United Kingdom, Associated TV, which proved to be highly lucrative. King next turned his attention to magazines. In 1958 he bought Amalgamated Press, the magazine group founded by his uncles, then Associated lliffe Press, and finally Odhams Press. This included newspapers as well as the Odhams, Newnes, and Hulton magazine groups. When the Mirror and Pictorial companies became the International Publishing Corporation (IPC) in 1963, it was by far the largest publishing group in the United Kingdom. It had four mass-circulation newspapers, all the leading women’s magazines, a host of specialized magazines and directories, and no less than 25 printing plants.

Through this period of upheaval the Mirror and Pictorial had held on to their shares in Reed, which they saw as a substantial asset, to be protected and developed. When its future began to look uncertain, King obtained voting control of Reed by transferring to it all the pulp and paper mills owned by Mirror and Pictorial. In 1963, while retaining the chairmanship of IPC, he made himself chairman of Reed and installed one of his senior managers, Don Ryder, as managing director.

Don Ryder was a former financial journalist who had shown a flair for management. Under his vigorous lead, Reed expanded and diversified. Its success in packaging and its growing overseas interests had already reduced its dependence on the U.K. newsprint and kraft business, and Ryder speeded up this process by a series of takeovers. First he bought companies in other branches of the paper and packaging industry. Then in 1965 he successfully bid for The Wall Paper Manufacturers (WPM), a large but sleepy company which then had a virtual monopoly of the wallpaper market in the United Kingdom. It also included a paint business and Sanderson fabrics. In the same year, Reed bought Polycell Holdings, which made Polyfilla and other decorating products. With these brands Reed acquired instant dominance of the fast-growing do-it-yourself market. Then, through further takeovers, Ryder took Reed into bathroom equipment and other building products. By 1970 the company could be described as a conglomerate. Its work force had grown to 56,000. The enlargement of its share capital had freed it from IPC’s control, and its market value had risen well above that of IPC.

Meanwhile IPC had run into difficulties. The worst of these concerned the Daily Herald, a Labour Party newspaper owned jointly by Odhams and the trade unions, which lost money steadily. IPC persuaded the trade unions to relinquish their share, and relaunched the paper as the Sun. This was no more successful and was finally sold to Rupert Murdoch at a very low price. In addition, there were serious losses on the printing side of IPC. Many of the works it had acquired in its takeovers were found to be obsolete, and had to be closed down or modernized at further cost.

Finally, King’s activities created a problem. Instead of tackling the company’s financial difficulties, he became increasingly preoccupied with politics. The Daily Mirror had helped to get the Labour government elected in 1964, and afterward King felt that it should listen to his views. When it did not, he turned on Labour with irrational fury. In 1968, on the front page of the Daily Mirror, King demanded the prime minister’s resignation. King’s colleagues at IPC felt that he was misusing the paper’s power and forced him to resign.

He was succeeded by Hugh Cudlipp, a brilliant editor but a poor businessman. Afterward, he admitted that his chairmanship of IPC was “uninspired.” The company’s decline continued and takeover rumors began. As IPC still owned 27% of Reed, and Ryder could not allow it to fell into unfriendly hands, he and Cudlipp agreed in 1970 that Reed should take over IPC.

The combined company was named Reed International, incorporating part of IPC’s name, and its turnover made it the 30th largest U.K. company. Its work force numbered 85,000, and its business spanned more markets than at any time before or since. However, Reed’s position in most of these markets was far from secure.

The U.K. paper business was still contracting, and Reed had to close down some operations in the 1970s. Its Canadian pulp and paper business was only intermittently profitable. The printing business inherited from IPC continued to lose money, even after the older plant was closed, and Reed failed to deal with its overmanning. WPM faced increasingly tough competition in wall coverings and saw its market share steadily eroded. Newspaper circulations in the United Kingdom were declining and all IPC’s nationals lost ground. It was the Sun’s recovery under Murdoch that hit the Mirror hardest.

In the early 1970s Ryder kept profits moving upward, by rationalizing in the weaker areas and increasing investment in the stronger ones. Indeed, his reputation as a manager was so impressive that at the end of 1974 he was plucked from Reed by the government to head its new National Enterprise Board. His successor, Alex Jarratt, continued to implement Ryder’s policy, but it was no longer working. In 1975-76 the company’s profits fell by more than 50%, and in the next few years made only a partial recovery.

Only in 1978 did the company recognize that the expansion policy initiated by Ryder had failed in the long run. Turnover had grown tenfold in his 11-year reign, but profits had grown much more slowly, and the outlook was poor. Jarratt decided to dispose of its unprofitable parts. Most of the overseas subsidiaries were sold, and the work force was reduced to 60,000. Nevertheless, 1980-1981 saw another halving of profits and another round of cutbacks began, this time mainly in the U.K. paper division.

In 1982 a new chief executive was appointed, Leslie Carpenter, who had come up through the magazine division of the company. The next annual report pointed out that 60% of the company’s trading profit was coming from the 40% of its turnover that lay in publishing. From that time onwards, new investment was concentrated in this area. Local newspaper chains were acquired in the United Kingdom, together with publishing and exhibition companies in the United States, where the Cahners subsidiary, a magazine publisher wholly owned since 1977, was thriving.

At this time the company’s publishing activities still included U.K. national newspapers. Despite the introduction of photocomposition, these were far less profitable than the magazines. In 1984 Reed decided to float them as a separate company. “National newspapers do not sit easily in a large commercial corporation,” said Carpenter. The move was forestalled by a takeover bid for the newspaper group, which was accepted. This was from Robert Maxwell, who had already bought the Odhams gravure printing works from Reed.

Reed was thus left with a flourishing magazine business on both sides of the Atlantic and a miscellany of less profitable manufacturing businesses—the much-reduced paper and packaging division, as well as paints and building products. During Carpenter’s time as chief executive there were further disposals in the manufacturing area, and the final moves to abandon manufacturing were made under his successor, Peter Davis.

The most significant change came in 1987. In that year the paints and do-it-yourself division was sold, and Octopus Publishing was bought. Octopus, which cost Reed £540 million, was the largest publishing business the company had acquired since IPC. It is a diversified international publishing group with a major presence in mass-market nonfiction books, fiction and general trade books, children’s books, educational books at both the primary and secondary level, and in business and technical books, and greatly increased Reed’s strength in these areas. Its founder, Paul Hamlyn, moved to Reed with the business and became the company’s largest non-corporate shareholder.

Paper and packaging, for so long Reed’s sole business, was the last of the manufacturing divisions to go. It was bought in 1988 by its own management, taking the name Reedpack, and two years later was sold again to a Swedish company, Svenska Cellulosa. Reed also sold its North American paper group to Daishowa Paper Manufacturing Co., Ltd. in 1988 for C$594.

Reed continues to buy publishing businesses as opportunities arise and is now building up its electronic information services. It is also the largest organizer of exhibitions in the world. So far, its new orientation has been a success: profits have grown every year since 1983, although turnover has diminished.

Principal Subsidiaries

IPC Magazines Ltd.; Reed Business Publishing Ltd.; The Reed Exhibition Companies Ltd.; Reed International Books Ltd.; Reed Regional Newspapers Ltd.; Reed Publishing (USA) Inc.; Reed Telepublishing Ltd.