Investor Relations

Streamlining a Two-Headed Monster at RELX

The finance chief of RELX Group, which includes Elsevier and LexisNexis, tells how the company changed its structure to help out investors.
David KatzSeptember 25, 2015
Streamlining a Two-Headed Monster at RELX

While the transformation of Reed Elsevier started well before Nick Luff joined the company as CFO in January 2014, he’s played a substantial role in that effort. Among the changes Luff is credited with, in fact, is helping to hatch the company’s new alphabet-soup name: RELX Group.

Nick Luff, CFO of RELX Group

Nick Luff, CFO of RELX Group

Complex as the group was before the implementation of the changes on July 1 – and still is, relative to other companies – coming up with a new name proved something of a challenge for Luff, a top-of-his-class math graduate from Oxford, and his colleagues.

After all, the change had to meld the names of two parent companies, Reed Elsevier PLC, a London Stock Exchange traded company, and Reed Elsevier NV, which is listed on the Amsterdam Stock Exchange. That’s because the group’s leaders decided that the Reed Elsevier name had become a bit passé, reflecting the company’s origins in newsprint and publishing. (The group also trades as an ADR on the New York Stock Exchange.)

“It made sense to modernize the name and come up with something shorter that perhaps represents [our] whole print-to-digital transition and gives a sense of modernity that the traditional Reed Elsevier publishing name didn’t have,” Luff said during a visit to CFO’s New York office last week.

That decision was fairly easy to make, since it merely meant a name change for the corporate group and its parent companies, rather than a full-scale rebranding of the entire organization. The change would only be recognized by investors, while niche customers would continue to interact with the group’s underlying, often well-known subsidiaries, according to the finance chief. Buyers of science journals would still deal with Elsevier, for example, legal researchers would continue to do business with LexisNexis, and exhibitors would match up with Reed Exhibitions.

When it came down to it, however, coming up with the new name was difficult and contentious, Luff says. They could do nothing to combine the names of the two companies that were jointly owned by the parent companies: Reed Elsevier Group in London and Elsevier Reed Finance in Amsterdam. At first, the executives considered using a combination of Latin or Greek sounding words in the way that Diageo, the U.K. alcoholic beverages company, did, he adds. (Diageo is made up of the Latin word “dies” (day) and the Greek “geo” (world).)

In the end, the executives ended up “sort of playing Scrabble” with the first letters of the group’s four divisions, Risk and Business Information, Elsevier (the name of the scientific and technical journals business), Legal, and Exhibitions, the CFO recalls. To those with an attachment to the past, the “R” in “RELX” might also stand for “Reed.” The roman-numerals look of the name also seems to have appealed to the math major in Luff.

But what’s in a name? A good deal less, in terms of effort, than the simplification of the corporate structure (without changing the economic interests of the parent companies’ shareholders) that also announced at the start of July. Before the changes, the parent companies jointly owned the two underlying finance and operating companies and the subsidiaries; now, the newly combined single entity, RELX Group, simply owns everything. The move allays the complexity of an organization that previously had as many as 22 separately operating businesses, according to Luff.

Further, the group is trying to ease investor confusion by equalizing the shares of the two parent companies, which continue to be the stock-issuing vehicles. Previously, a share of the Netherlands parent company was worth 1.538 shares of the U.K. parent company. The group has now arranged it so that the shares are equal.

In the interview, Luff provided insights about RELX’s transformation and his own role in it. An edited version of a portion of the conversation follows.

What have been the challenges of being the CFO of an organization with two parent companies?
It does mean you’ve got two sets of stock trade regulations and two tax regimes for the two parent companies. And the board meetings are a little bit more complicated, because we happen to have two company secretaries, one taking minutes for the Dutch company and one taking minutes for the U.K. company. At the same time, you have one meeting and the boards are identical. If you sat in a meeting you wouldn’t realize that it’s actually a dual-headed company. But day to day, to most of the people in our business it doesn’t make any difference at all.

But it does affect us at the very top corporate level. And in terms of investor understanding, we definitely have a challenge, although we aren’t unique in having a dual headed structure. But we definitely have the most complicated one. [Before the changes] we couldn’t even manage to have one share equivalent to one or the other.

One Dutch share was worth 1.538 U.K. shares, and the share price was obviously reflective of that. But, crikey, if you were an investor analyst trying to do a per-share calculation for us, it’s quite a difficult bit of math. Their eyes start glazing over. So [the share equalization] was one of the first things that I worked on. I didn’t start it, the company had been working on it for a while. But when I joined, we were in the midst of seeing if we could simplify this. And we went as far as we could in simplifying it without affecting the economics of the shareholders.

What was the situation like before?
There used to be cross-shareholding between the two parent companies. The number of shares on each side weren’t equivalent. We’ve removed this cross shareholding, so if you want to calculate the combined market cap of the two companies you just add them together. You used to have to add them together and subtract [a factor]. Horrendous.

What challenges did the equalization involve?
We had to work through all the legal issues. [Reed Elsevier] stemmed from a merger 22 years ago that was all carefully worked out in terms of tax. And one of the other features we had was that rather than one company here, we actually had two: under the two parent companies, there was a financing company and an operations company. And we combined them into this RELX group. That was where we had to make sure that tax works for us. We can’t have some big tax liability.

What are the investor-relations difficulties have you faced?
That’s partly why we’ve done the simplification. In the U.K., we’re quite a big company. Most traditional U.K. investors would know us and follow this [transformation] and have taken their time to get their head around some of these complications. In the Dutch market we’re a very big company, but the Dutch investor market is not huge. So local Dutch investors understand it. But actually 50% of our revenue comes from North America, and we want to make sure that we’re appealing to the widest set of shareholders that we can. Having an investment story that can be understood and will appeal to a wider set of investors including, in particular, U.S. investors, is important to us. So a lot of the motivation for the simplification was about that: “How do I stop the complexities of our structure from being an impediment to the tech investor in San Francisco or New York?”

What response has the transformation received from investors?
In every meeting we have [with large investors], we’re talking 99% about the business and not having to take out 25% of the time to explain our quirky structure. Now whether you can see results from the shareholder [value] point is hard to say, because there are so many other factors. But we have outperformed both the U.K. and the Dutch markets by about 5% or 6% this year. So that tells you something.