U.K. publisher Hodder & Stoughton is buying the independent, London-based, Quercus in a cash bid of £12.6 million. The price is some way below Quercus' turnover (which was £20.4 million in 2012), but represents 144.9% of the value of the company's shares (24.5p) at the close of business yesterday (24 March). Quercus shareholders will receive 60p per Quercus share.
Quercus announced in January that it expected to make a "significant loss" for the financial year 2013, and shortly afterwards released the news that it was up for sale. Following a period of expansion, the company had moved into new offices, set up in the US, established its own sales force, and made several significant book acquisitions that failed to produce bestsellers.
Hodder, a division of Hachette UK, had the bestselling title of Christmas 2013, Sir Alex Ferguson's autobiography.
Tim Hely Hutchinson, Hachette UK CEO, said: "My colleagues at Hodder and I greatly admire what has been achieved at Quercus in a relatively short time. If our offer is successful, Quercus will become a distinct division within our company and will benefit from Hachette UK Group's funding resources and sales reach to secure a very bright future for the Quercus Group."
Quercus Chairman David Potter said: "In today's highly competitive and technological world, Quercus' board believes that publishers will best fulfil their potential by being part of a larger and more diverse group. We believe that Hodder is the right home for Quercus and in particular our publishers and authors, who remain the lifeblood of our business."
CEO Mark Smith added: "Over the last 10 years we have built Quercus into a £20m-plus revenue business, with divisions in both the UK and North America. During this time we have helped debut authors become established bestselling brand names, published the international phenomenon that is theMillennium Trilogy and have built what we believe to be a world class roster of authors from across the globe. For the next phase of its development and to fulfil Quercus' potential, we believe that Hodder and Hachette UK is the right home for Quercus."
Quercus's shareholding Directors are Mark Smith (2,747,606 shares - 13.4%), Wayne Davies (396,500), David Potter (234,257), David North (10,000), and Jane Harris (2,500).
This is Hachette's second acquisition of an independent publisher this year, following Little, Brown's purchase of Constable & Robinson. About half of the positions at C&R are subject to consultation.
Reaction from the trade has been broadly positive, with agents welcoming the move. Said Sheila Crowley of Curtis Brown: "Jamie [Hodder Williams, Hodder's MD] is one of the best business strategists in our industry, and he has driven Hodder to great heights. I believe he will do the same for Quercus." Jane Gregory echoed that thought: "Hodder is a very well-run company and can, I think, bring out the best in the Quercus list and will probably allow and encourage Quercus to keep its identity." Clare Alexander of Aitken Alexander Associates noted: "It leaves Jamie running Hodder, Headline, Murray and Quercus - interesting in Tim's federal structure to have four companies clustered in this way. But broadly I'm pleased. Hachette will keep the integrity of Quercus as separate and distinct." At Blake Friedmann, Carole Blake thought it "one of the better matches, Hachette being a generally benevolent owner, but I wonder what it will mean for staff numbers, given the recent Constable & Robinson purchase and slim-down".
Another high-profile agent, who wished to remain nameless, shared Blake's concerns: "It’s good to see a time of detrimental certainty coming to an end for the company and the authors on its list, but there is always concern for individuals working there with any big corporate consolidation. With folk at C&R being let go after the Little Brown acquisition and one building to move into, it will be interesting to see what musical chairs this begins editorially."
Hachette is to move divisions from four London offices into a Victoria Embankment building later this year. A number of Quercus staff have come from Orion or from one of its sister companies in the Group - how will they now fare? And what of the Hachette retirement age? It was once 62, though the new CEO and his Deputy are both at or around that age. Quercus MD David North is a relative youngster, but will there be a place for him in a slimmed-down Hachette UK? Inevitably, there are many unanswered questions which will make for an uncomfortable few months for Quercus staff.
At the outset, many thought Orion the most likely home--the company where Mark Smith and Quercus co-founder Wayne Davies began their careers. Headline, thought to need "bolstering", came into the frame last week--but Hodder has rarely if ever been mentioned. As to Amazon, was it a serious player or were those stories simply rumours? Or did Hachette buy Quercus simply to avoid any such move? As one agent put it: "Tim Hely Hutchinson would do anything to keep Amazon out."
As to the price, one former money-man thought it "very generous", given how low the share price had been for so long. It dipped below 50p in early January, having peaked at 152.08 in January 2010. The nadir was in August 2009, when the price sank as low as 11p and Pentland rode to the rescue. Quercus staff were always encouraged to buy shares, and any who bought at the peak (when it was tipped as a "hot" buy) will now be facing a loss. One owner to whom BookBrunch spoke this morning was relieved to be making a profit of around 3p per share. Anthony Cheetham is still thought to own shares, though he had sold a large tranche to fund Head of Zeus.
Many in the trade thought the most likely outcome was administration, with publishers left to cherry-pick the Quercus catalogue--and the value of that catalogue remains open to question. True, there is a "new" Stieg Larson to come, but the Millennium trilogy--on which Smith and his colleagues staked so much - is past, and it is not clear who else among the many authors so rapidly acquired has the potential to be a reliable banker.
For a company for which so many had such high hopes, and for the wider trade, which thrives on the life-blood of indies, it is a sad moment.
*This article has been corrected. An earlier version of this article stated that Hachette would see 17% redundancies when it moves offices. The publisher has denied that this figure has any sound basis.