Reader's Digest Sells First Foreign Business

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PLEASANTVILLE, NY - The Reader's Digest sold its entire South African operation - magazine, books, videos, music and office building in Cape Town - to Heritage Holdings Ltd. for an undisclosed sum.

The deal was concluded on Jan. 1 and announced at the company's headquarters here a week later. Heritage is a major direct marketer of books, music, videos, electronic goods and other products in South Africa.

The deal gives Heritage a 15-year license to market Reader's Digest Association (RDA) products under the RDA brand name throughout South Africa on a royalty basis. The Reader's Digest has been in South Africa for 50 years, starting in 1948.

"We celebrated our 50th anniversary last year," RDA spokeswoman Lester Cordrill said. "But we've been operating in South Africa at a loss for several years." The sale fits the strategy Tom Ryder, the new CEO, has been developing since he took over the company last year.

"The sale is part of our corporate strategy to dispose of certain assets and establish strategic relationships with skilled partners to finance new strategies for growth," Ryder said in a statement.

The company is taking a "hard look" at underperforming assets with a view of disposing them, Cordrill said. "If we don't have the needed expertise in those areas, we want to do partnerships with companies that can build the business, she said. "This is something we are doing around the world. We are taking a close look at our Scandinavian operations, and at others, with a view of either beefing them up, scaling them back or getting out."

Unconfirmed reports suggest that the Benelux countries may be next on the operating table. Canada is also thought to be in trouble.

RDA will receive royalties from the sale of its products in South Africa under the new ownership. Cordrill pointed to the difficult economic and political situation in South Africa in recent years as one reason for selling.

She noted that Donald Corrie, the CEO for Reader's Digest South Africa hired two years ago from Estee Lauder, "had engineered a great comeback" but that it simply wasn't enough to justify continuing the business there.

Corrie had been forced to downsize even as he brought the company back. It is the first foreign operation the Digest has sold under Ryder's stewardship.

Heritage Holdings is run by Barry Lloyd and Philip Bateman, two executives who had worked in a marketing capacity for Reader's Digest South Africa in the past, giving them a knowledge of the products and the best ways of marketing them.

"We're aiming to bring new momentum both to the South African edition of the magazine and to the book, music and video products marketing programs," Lloyd said.

The RDA's extensive South African mailing lists were part of the deal. Cordrill declined to reveal how many names were on its South African database.

Lloyd, however, thinks the two lists "offer tremendous cross-selling opportunities. The transaction effectively doubles our list of active buyers." n

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