Shares of McGraw-Hill Companies Inc. (MHP: Charts, News) closed up +0.61 or +1.17 percent to $52.85 per share on Tuesday before news broke that the company had reportedly initiated exclusive talks with Apollo Global Management LLC (APO: Charts, News) for the sale of its educational publishing unit. McGraw-Hill’s educational unit distributes textbooks in 157 countries in 65 languages and is the world’s second largest educational publisher by sales.
McGraw-Hill had originally intended to spin-off the educational subsidiary in 2011 after two minority shareholders, the Ontario Pension Plan and JANA Partners LLC, asked for the company to restructure. After spending $99 million last quarter cutting ongoing costs and restructuring, its education publishing business still dropped 11 percent in the weakest textbook market in a decade.
Rockefeller Center, New York, NY based McGraw Hill is the parent company of Standard & Poor’s, J.D. Powers and Associates and Platts, making up the company’s core financial companies. In addition, McGraw-Hill owns Aviation Week, McGraw-Hill Construction and a majority share in Canadian publisher, McGraw-Hill Ryerson as well as its educational publishing unit.
McGraw-Hill has been auctioning its educational unit to several interested buyers over the past few weeks as an alternative to spinning off the unit. Interested buyers included Apax Partners LLP who recently acquired textbook publisher Cengage from Thompson Reuters Corp. (TRI: Charts, News), Bain Capital and Apollo, who ultimately prevailed and is now in exclusive talks with McGraw-Hill.
Nevertheless nothing has yet to be decided and a price for the unit has yet to be announced, but analysts estimate the price for the unit will be around $2.5 billion. McGraw-Hill was originally looking for $3 billion and could still decide to spin-off the unit.
Earlier this month, McGraw-Hill reported a 14 percent decline in net income from the same period one year ago. Nevertheless, adjusted earnings per share beat analyst expectations at $1.33, versus the consensus of $1.30.
Despite the decline in profits, mostly due to restructuring costs and the 11 percent decline in its educational unit, the company’s Standard & Poor’s subsidiary’s revenue surged 64 percent from a year ago due in large part to revenue from new bond issues. The revenue from new ratings were mainly from lower grade and junk bond corporate issues from the United States as the Federal Reserve has vowed to keep interest rates low.
McGraw-Hill’s educational publishing unit is expected to earn $350 million in 2013 before taxes, interest and other costs. Speaking to shareholders and analysts after third quarter earnings, CEO and Chairman, Harold W. McGraw stated that, “In parallel with our efforts to spin off McGraw-Hill Education, we have undertaken a thorough evaluation process of numerous options, including the option to sell the business. This process is near its conclusion, and we expect to reach a decision in the coming weeks. Critical to this decision is ensuring that we choose the option that maximizes shareholder value. The timing of the ultimate separation will be dictated by which option is chosen.” No final decision has yet been announced by McGraw-Hill, which could lead to further speculation on the company’s stock price.
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