Flip This Investment

Buy it, tart it up, and make a quick sale at a profit. Popular concept when it comes to real estate, and now Reed Elsevier will give it a go with one of their investments.

Not long after buying a $300 million stake in the Riverdeep - Houghton Mifflin - Harcourt minnow - whale - shark conglomerate, the suits at Reed would like to unload that same stake. As if someone would buy it. Anyone in real estate knows that you talk up your property before selling, not down, and Sir Crispin Davis of Reed Elsevier hasn't taken a very positive note lately.

Never planned on a "long-term shareholding" he says about the recent agreement to pick up a stake in HM Riverdeep. Only did it to tart up the deal, make the banks happy. Oh look, the staid lenders at Credit Suisse were heard to say, it must be a grand deal because Reed Elsevier is buying into it. Now it turns out that Sir Crispin doesn't want to keep what he bought after all.

All the talk these days is about the growing tightness in the market and how so many leveraged buy-outs are in danger of being caught up in a credit squeeze. Naturally, anyone holding stock in Reed Elsevier would have been concerned about the potential deal, as the cost of borrowing $7.4 billion seemed headed to the astronomical heights. They didn't want to be stuck with some bad paper, and apparently Sir Crispin doesn't want to be stuck with it either.

The purchase of Reed's Harcourt Education division must still face regulatory muster, and that will eat up time. With the recent volatility in the markets, no one can say what the credit situation will be at the end of the year, when the deal could be finalized. Barry O'Callaghan is playing the odds that the interest rates will remain steady, while Sir Crispin is hedging his bets in the event that interest rates climb and there's not quite so much capital available.

Sir Crispin is also counting on some other financial gambler who thinks like Mr. O'Callaghan. Who else would buy up Reed's piece of HMRiverdeepHarcourt?