George S. May Business Blog

Ian Smith ousted from Reed Elsevier — No hard feelings though..right?

Well that didn’t last very long. At least there is no “disagreement” about the change…Well, according to current Chairman Anthony Habgood.

AMSTERDAM (Dow Jones)–Ian Smith, chief executive of Reed Elsevier PLC (REL.LN), resigned unexpectedly Wednesday after only eight months in the job, but the Anglo-Dutch publishing group’s chairman said the move doesn’t herald a pending strategic shift.

In a statement, Reed Elsevier said Smith, age 55, had resigned by mutual agreement and had also stepped down from the board, effective immediately. The company named his successor as Erik Engstrom, 46 years old and a native of Sweden, who became CEO of scientific publisher Elsevier in 2004 and has been a member of Reed Elsevier’s executive board since 2005.

Smith wasn’t immediately available to comment further on his abrupt resignation, a spokesman said.

Reed Elsevier’s main businesses are science, medical, legal and business publishing; exhibitions and conferences; and data businesses such as LexisNexis and ChoicePoint. It tried last year to sell its Reed Business Information unit–publisher of titles such as Broadcasting & Cable and New Scientist–with hopes of using the proceeds to pay off the $4.1 billion of debt it racked up in the 2008 acquisition of ChoicePoint. But amid tough market conditions, the sale was called off.

A Reed Elsevier spokesman said the board concluded that Smith–a newcomer to the publishing world who was previously CEO at U.K. house builder Taylor Woodrow–wasn’t the right executive to lead the company forward, especially amid the turbulence of the recession and the downturn in advertising.

In an interview, Reed Elsevier Chairman Anthony Habgood–who joined the company earlier this year, after Smith came onboard–said the executive change won’t bring immediate strategic shifts.

“This is not the result of any kind of strategic disagreement or change of direction,” Habgood said. “We didn’t have a disagreement between Ian and myself and Ian and the board or anything like that.”

Habgood said, for example, that Reed would not for now revisit its attempt to sell Reed Business Information. Market conditions have improved since it halted the sale attempt late last year, but he said: “There aren’t a lot of deals being done.”

Engstrom’s task, he said, is simply to get on with running the company amid a brutal advertising market that is reshaping the future of the company’s publishing business in various ways.

“There are some parts of the business that are in secular decline, some in cyclical decline, some are growing,” Habgood said. “It’s all about understanding how the markets are moving and managing the company.”

Smith’s departure comes as the economic slump hurts previously resilient parts of Reed Elsevier’s business. In July, the company issued a profit warning and raised GBP824 million in a share placing that also underscored the continued drag on earnings from Reed Business Information.

Investors weren’t happy with the company’s July profit warning and the timing of the share issue, said Petercam analyst Thijs Berkelder. “The new CEO likely will have solid backing but first will have to calm the unrest,” said Berkelder, who cut his rating on the stock to hold from buy.

Smith was former chairman Jan Hommen’s choice as CEO, said one media analyst who preferred to remain anonymous, adding there was a perception that Smith didn’t press ahead with sufficient urgency, leading to “general frustration.” He said that Engstrom, “one of Davis’ men,” is good operationally and likely to present a more coherent strategy.

In a trading update brought forward to Wednesday from Thursday, Reed also said that business trends seen in the second half are expected to continue for the rest of the year and into 2010.

The company added that advertising and promotion markets, and other transactional markets such as employee screening, remain difficult but should stabilize as comparisons get easier.

However, it said it expects a “modest reduction” in adjusted operating margin in 2010, due to increased investments in a weak revenue environment. The company added that these are “only partially mitigated by restructuring and other cost actions.”

Smith’s resignation took investors by surprise. By 1508 GMT, shares were down 4.3% at EUR7.90, against a 1.9% rise in Amsterdam’s AEX market.

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