Spanish book publisher Grupo Planeta acquires French book publisher Editis

In May 2008, the largest Spanish book publisher Grupo Planeta (GP) acquired Editis, the second biggest French book publisher from Wendel Investissements, a French private equity firm, for EUR 1.026 billion. Barcelona-based Grupo Planeta, founded in 1949, with subsidiaries in Colombia and Mexico now has a made its first foray into publishing in a language other than Spanish. There're very few reports or analysis in the English language media (that I could find online) of this mega deal in the book publishing sector, which is likely a harbinger of deals to come. Here's what I've been able to gather on the deal.

• Some background on the Acquirer as described on Grupo Planeta's website,

  GP is the leading Spanish communication group with wholly family-owned capital and a producer of cultural, news, educational and entertainment contents for the Spanish-speaking market. It is the foremost publishing group in Spain and Latin America and is a reference shareholder of Spanish mass media including television, radio, press and the Internet. Founded in Barcelona in 1949 following the creation of Editorial Planeta and the promotion of direct sales of major encyclopaedic works, Grupo Planeta quickly became consolidated as a prestige brand with a capacity for combining tradition and a forward-looking approach. In 1966 it opened its first subsidiaries in Colombia and Mexico, marking what would be a constant part of its activity: an uninterrupted presence in Latin America. Today, Grupo Planeta boasts over 40 publishing labels that publish works by over 5,000 authors including the most outstanding writers of classical and contemporary literature. It is also leader in the commercialisation of major encyclopaedic works and in sales by instalments.

  and the Target as described on Editis' web site,

  With 2600 employees and about 44 publishing imprints, Editis holds leading positions in three segments of the publishing business, in particular Literature (trade and mass market formats), Education (scholarly, scholastic aids, middle school, high school, university, legal and medical), and Reference (dictionaries and encyclopedias), as well as in the field of publishing services (promotion and distribution). Prestigious publishers and efficient group-wide services have made Editis number two in the world of French publishing and a major player in Europe.

  20 December 2002: Vivendi Universal Publishing (VUP) sold its publishing business (including Editis) to the Lagardère group, subject to authorization by the European Commission.
  7 January 2004: The European Commission authorized Lagardère to retain ownership of part of the VUP's publishing assets, representing some 40% of Editis' total sales. Lagardère decided to keep the publishing firms Larousse, Dalloz, Dunod, Armand Colin, Sedes, Nathan-Université, Anaya group (Spanish) and the Ivry-Rigaud distribution center. The remaining 60% of VUP's publishing assets were put back on the market. Taking the name Editis, this group refocused its activity on publishing for the French-speaking world.
  30 September 2004: WENDEL Investissement announced that it had acquired Editis from Lagardère SCA for € 660 million.

  [Lagardère's agreement to buy VUP's publishing business] attracted criticism from competitors and government agencies (e.g. comments that Lagardere would have over 50% of France's paperback sales, 80% of textbook sales and 69% of book distribution), reflected in the decision by the European Commission's competition unit that Lagardere should relinquish much of the acquisition. (Source: Ketupa)

• The details of the deal as described by Calcyon, Grupo Planeta's investment banker

  With a value of EUR 1,026 million, it is the largest acquisition ever made in France by a foreign media group and one of the largest media mergers & acquisition deal in Europe in 2008. Editis is the second largest French book publisher next to Hachette and the leader in its domestic market. With prestigious publishing brands such as Nathan, Bordas, Le Robert, Plon, Perrin and Robert Laffont, it generated sales of EUR 760 million and operating profit of EUR 93 million in 2007. Through this acquisition, Planeta becomes one of the leading European publishers of textbooks and literature and reaffirms its international ambitions.

  With the integration of Editis, Grupo Planeta will generate revenues of EUR 3.2 billion of which EUR 1.7 billion in publishing.

  Calyon is financial advisor to Grupo Planeta for the EUR 1 billion acquisition of Editis and bookrunner and coordinator of the acquisition syndicated loan. The acquisition financing is structured in two facilities: one EUR 120 million tranche for the acquisition holding company, owned by Planeta and its shareholders, and one EUR 550 million tranche at Editis level to refinance existing debt.

  The deal values Editis at 1.35 times 2007 revenues. Grupo Planeta's annual sales prior to the acquistion were EUR 2,500 million of which about EUR 1,000 was from their book publishing division.

• The logic for the acquistion?

  José Manuel Lara, Planeta chairman, stated that "the signing of this operation is doubly pleasing for us. Firstly, because it means an important step forward for the strategic development of Grupo Planeta, whose publishing activity, since its creation, has been exclusively focused on the Spanish-speaking market. From now on, we will have access to another great linguistic market, the Francophone market, making us one of the major European publishers. Secondly, because for Editis, belonging to a group like Planeta, with its clear international vocation, opens up great expectations for development as there is no duplicity between them but there are, in contrast, enormous potential synergies.

  Another report in Spanish dated April 22, 2008, accessible through Google's translation into English (sic) says

  [GP chairman] Lara has explained today at a press conference that 'in 2004 and the Grupo Planeta tried to buy Editis, then in the hands of Vivendi Universal, but the operation was closed because not appeared on stage Wendel'.

  According to Lara, the operation in France is a consequence of the strategy Planet, which can hardly grow in the domestic market because 'we can only Spain in a shaft of growth, the textbook, but now is a sector with uncertainty by raamatut policy, because you need some runs high and because it is not known how education will evolve in the future with the new electronic media '.

  Editis, which has a turnover of 760 million euros and 2,600 employees, is also one of the distributors of reference through its subsidiary Interforum. Since 2004, has initiated a process of internationalization with the acquisition of seven new companies, including the Belgian Boeck, who have contributed 150 million euros of turnover. The Planeta Group manages, on balance, a turnover of 2,500 million euros, 1,000 of them for the publishing, and has 12,500 employees. The transaction will be financed with 40% -50% of own resources and the rest through debt ratios, according to Lara, who 'do not represent a debt overhang of paternal society'.

  The acquisition of Editis lead to Planet group to 'think of other magnitudes, not so much to buy another group in France, such as expanding the business into other languages powerful', which has ruled the Asian languages, 'as a matter of different business cultures '.
  

  Grupo Planeta seem to have ambitions of expanding into Asian languages too, which would mean they may be interested in acquiring publishing houses in Chinese, Japanese, Korean and various Indian languages, some of which have far more speakers than either French, German, Japanese or Korean.
  
• How is GP planning to fund the acquisition? According to a Business Week report,

  Jose Manuel Lara, Founder of Grupo Planeta told Le Figaro that the company may launch an initial public offering (IPO) to finance the acquisition of Editis. When Jose Manuel Lara was asked if the company was planning to list on the stock exchange he replied: "Why not?" He did not exclude other possibilities to fund the acquisition.

  
  
• Grupo Planeta's next step? To break into the English publishing market? So says The Bookseller

  The €2bn (£1.57bn) book publishing giant created by the merger of Spain's Planeta and France's Editis will attempt to break into the English--language market once the takeover has been digested.

  In a ranking of global publishers, the deal will take the combined group to just outside the top five, competing for sixth position with Hachette Livre. Significantly, it will be the only group in the top 10 not to have either a UK or US presence.

  In an interview with the French daily newspaper Le Figaro, José Manuel Lara, president of the family-owned Grupo Planeta, said that the combination of the two would "be stronger to tackle the Anglo-Saxon market, even if it remains very difficult to penetrate". Editis chairman and c.e.o. Alain Kouck backed the plan, saying the deal would "enable us to build a new European publishing leader and ensure that Editis can expand outside the French-speaking world". He told The Bookseller: "Publishers reaching a certain size cannot grow [by acquisition] within their national borders without the risk of violating anti-trust laws."

  Planeta is little known outside of continental Europe. Based in Barcelona-when first contacted it said it wanted to conduct the interview in Catalan-the business was founded by Lara's father in 1949 and generates 70% of its €1bn (£785m) in annual book sales from Spain, 20% from Latin America and the remaining 10% from Portugal and Italy. Including its wider media activities, it generates €2.5bn (£1.96bn) in annual sales.

  Lara is a Francophile, having been French-educated in Barcelona during the reign of General Franco. "Our group, which had a tie-up with Larousse for years, always wanted to develop in France," he said. The company had talks with publishers Presses de la Renaissance (before the latter merged with Belfond) and with Presse de la Cité before it was bought by Editis, he said. It also looked at Editis before it was taken over by Wendel four years ago.

  
  
• How did Wendel fare with its acquisition of Editis in 2004 and sale in 2008 to Grupo Planeta? The Bookseller throws some light.

  Wendel should make a capital gain of about €320m (£251m) on the €1bn (£785m) deal. Although the sale came as no surprise, sources noted that when Wendel aquired Editis in 2004, supervisory board chairman Ernest-Antoine Seillière said it would keep the publisher for 10 to 15 years. "Instead, it has walked away after four years with a handsome profit," said one source.

  "No one could know in 2004 how difficult the publishing market would become," Wendel said in response. It denies reports that it opted for Planeta under pressure. "There was no ultimatum," the spokesperson said. "We accepted Planeta's offer, because it has a real project, with a sound, long-term vision and an uncontested leadership. The offer has been welcomed by the whole of the French publishing industry."

  
  
• How is the Planeta-Editis merger likely to fare? An op-ed piece in Spanish, (accessible through Google's translation into English) looks at the possibilities.

  The purchase by Planet of the French Editis is a qualitative and quantitative leap to another international dimension, in a mature market and an unknown environment, highlights the complainant. However, the trajectory of both groups and their management teams generate, in their view, optimistic expectations.

  Apart from the report in The Bookseller, there are no other reports or analysis of the Grupo Plaenta - Editis deal that I could come across in the English press - quite surprising.

For perspective (data from respective annual reports),

• Random House, owned by the Bertelsmann Group, publishes books in English, German and Korean (through its own subsidiaries) and in Spanish (through a joint venture with Mondadori) and Japanese (through a joint venture with Kodansha). Random House's 2007 revenues were EUR 1,837 million (EUR 1,947 million in 2006) with operating EBIT of EUR 173 million (EUR 182 million) at an operating margin of 9.4%. Random House contributes 10% of Bertelsmann's revenues.

• Multilingual book publisher Hachette Book Group, owned by conglomerate Lagardere publishes in French, Spanish and English. It's English publishing division acquired Time Warner Books in early 2006 from AOL-Time Warner in 2006 for US$ 538 million, at a little more than 1 times 2005 sales. Hachette's 2007 book publishing revenues were EUR 2,130 million (EUR 1,962 million in 2006), with operating margins of 11.2% (up from about 6% in 1998). 35% (EUR 746 million) of their 2007 revenues was from France, 10% (EUR 213 million) was from Spain and 41% (EUR 873 million) was from UK, USA and Canada.

• Penguin, owned by Pearson, is an English publisher. It began publishing in the Indian languages of Hindi and Marathi in 2005 in a small way. Penguin's 2007 revenues were £846 million (~ EUR 1,150 Million) with operating EBIT of £74 million (~ EUR 101 million) at an operating margin of 8.75%. Penguin contributes a substantial 20% of Pearson's revenues.

• HarperCollins, owned by NewsCorp, is an English publisher. HC's 2007 revenues were US$ 1,347 million (~ EUR 916 million) , with operating EBIT of US$ 159 million (~EUR 108 million), at an operating margin of 11.8%. HarperCollins contributes just 5% of its parent NewsCorp's revenues.

• Simon & Schuster, an English publisher owned by CBS had 2007 revenues of US$ 886 million (~ EUR 603 million), with operating EBIT of US$ 88 million (~ EUR 60 million), at an operating margin of 10%. Simon & Schuster contributes just 6% of revenues to its parent CBS.

Both HarperCollins and Simon & Schuster might be attractive acquisition targets for a publishing conglomerate like Grupo Planeta with aspirations of breaking into English publishing through acquisitions. Private equity firms have also been eyeing some of the leading publishers for a while now. The book publishing sector seems set for a wave of consolidation over the next decade.