Sept. 14 (Bloomberg) -- Reed Elsevier Plc and Wolters Kluwer NV, two publishers that abandoned a merger in 1998, should again consider combining because of the ``compelling'' strategic and financial logic of such a step, Merrill Lynch & Co. said.

A deal would add to earnings growth at Reed Elsevier, owner of the LexisNexis database, and bolster its position in scientific, technical, medical, legal and tax publications, Merrill analysts said in a report today. Reed Elsevier could make a bid that's as much as 40 percent more than Wolters Kluwer's current stock price, they said.

Reed's experience in selling information online could be used to exploit Wolters Kluwer's content more aggressively, Merrill Lynch said. A merger would improve the competitive position of Amsterdam-based Wolters Kluwer, Europe's largest tax and legal publisher, and help to accelerate the company's revenue growth, the analysts said.

``We believe there is compelling strategic and financial logic in either a Reed bid for Wolters Kluwer or a merger of the two,'' Merrill Lynch's analysts said. ``Kluwer's and Reed's core assets are mostly complementary rather than competitive and this gives rise to both revenue and cost synergies in our view.''

Reed Elsevier could bid 28 euros to 30 euros a share for Wolters Kluwer, financing the transaction with debt, the analysts said. That would add 15 percent to 25 percent to Reed Elsevier's earnings, though it would push debt to 4.5 times earnings before interest, taxes, depreciation and amortization, according to the report.

No Premium

Wolters Kluwer shares fell 5 cents, or 0.2 percent, to 21.16 euros in Amsterdam today, giving the company a market value of 6.5 billion euros. Reed Elsevier rose 6.50 pence, or 1.1 percent, to 608 pence in London.

Alternatively, the companies could agree to a merger with no premium to current stock prices, the analysts said. The combined company would have debt equal to 1 to 1.5 times Ebitda, meaning it could buy back shares or pay a special dividend.

Seven Merrill analysts contributed to the report, including Paul Sullivan, who has ``buy'' ratings on Wolters Kluwer and Reed Elsevier. He raised Reed Elsevier from ``neutral'' today. The analysts said they don't think a deal is imminent.

Patrick Kerr, a Reed Elsevier spokesman, and Wolters Kluwer spokeswoman Caroline Wouters both declined to comment on the report via phone today.

1998 Merger Attempt

Reed Elsevier in 1998 abandoned an agreement to buy Wolters Kluwer for $9 billion. Wolters Kluwer sought a larger stake in the combined business after it became clear that European Union antitrust regulators would make the companies sell more units than originally envisioned.

The stance of regulators may have softened since then, Merrill Lynch analysts said. Customers might even welcome a merger if it would improve the quality of the offered services, they said.

A combination also would be a defense against Thomson Corp., the owner of the Westlaw legal database and TradeWeb bond-trading network, which plans to purchase Reuters Group Plc, Merrill Lynch said.

Bloomberg LP, the parent company of Bloomberg News, competes with Thomson and Reuters in selling news, information and trading systems to the financial-services industry.

To contact the reporter on this story: Simon Thiel in London at sthiel1@bloomberg.net

Last Updated: September 14, 2007 11:54 EDT