LONDON - Reed Elsevier PLC, the world's largest publisher of scientific journals, agreed yesterday to buy Harcourt General Inc. for $5.65 billion in cash and assumed debt and then sell a big part of the U.S. textbook publisher to Thomson Corp. of Canada.
Reed Elsevier will pay $59 a share for Harcourt, the largest publisher of medical textbooks and journals, or 13 percent more than its closing share price Thursday. It also will take over $1.2 billion of Harcourt's debt.
Thomson will pay $2.06 billion for Harcourt's college textbook publishing and some professional training units.
Reed Elsevier strengthens its position in the medical and scientific fields with the purchase. The London publisher also adds a textbook unit aimed at elementary and high school children at a time when big U.S. states such as California, Florida and Texas are spending more on education.
"On the science side, it's an excellent strategic fit, and on the education side it's a very big expansion for Reed," said Gareth Thomas, an analyst at Commerzbank Securities who rates both Reed and Elsevier shares "hold."
Although several potential buyers wanted pieces of Harcourt, the Chestnut Hill, Mass., publisher wanted to sell the company as one unit to limit capital gains taxes, said Peter Farwell, a Harcourt spokesman.
Harcourt, founded in 1919 as Harcourt Brace and the publisher of Sinclair Lewis' novel "Main Street," said in June that it hired Goldman, Sachs & Co. to advise it on a possible sale of the company because its shares had lagged the market.
Harcourt shares rose $4.71, or 9 percent, to $56.81 in New York Stock Exchange trading. Thomson fell C$2.45 to C$57.50 in Toronto.
Reed International PLC shares, which trade in London, rose 46.5 pence, or 8 percent, to 626p. Reed International owns half of Reed Elsevier, with the other half owned by Elsevier NV of Amsterdam. Elsevier shares rose 0.73 euros, or 5.2 percent, to 14.86 euros in Amsterdam trading.
Thomson, Reed Elsevier's biggest competitor in publishing legal information, will buy Harcourt's college-level publishing group and part of its corporate and professional services group. Those businesses are expected to generate $750 million in sales this year and will become part of the Thomson Learning group.
Crispin Davis, who was hired as Reed Elsevier's chief executive a year ago to stem three years of declining profit, has focused on distributing scientific, legal and business information on the Internet.
The Harcort purchase is the company's biggest since Reed Elsevier canceled a $9 billion takeover of the Netherlands' Wolters Kluwer NV in March 1998. There were regulatory concerns that it would be anti-competitive.
Reed Elsevier outbid a financial group made up of Thomas H. Lee Co., Bain Capital Inc. and Blackstone Group Inc., the Wall Street Journal reported.
"Because of the complexity of Harcourt's business, wanting to sell to one bidder really limited the number of potential buyers," said analyst Peter Appert of Deutsche Banc Alex. Brown. "The price paid represents a very attractive price for the buyers."
