Item 1.01
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Entry into a Material Definitive Agreement
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Divestiture of HMH Books & Media
On March 26, 2021, Houghton Mifflin Harcourt Publishing Company (“HMH Sub”), a wholly owned subsidiary of Houghton Mifflin Harcourt Company (the “Company”), entered into an Asset Purchase Agreement (the “Agreement”) with HarperCollins Publishers L.L.C. (the “Purchaser”) and, solely for purposes of guaranteeing the obligations of the Purchaser under the Agreement, News Corporation, the Purchaser’s parent company (“Parent”), under which HMH Sub agreed to sell to the Purchaser all of the assets, including intellectual property, as set forth in the Agreement used primarily in its HMH Books & Media segment (the “Business”), for cash consideration of $349 million, subject to a customary working capital adjustment, and the Purchaser’s assumption of all liabilities relating to the Business subject to specified exceptions (collectively, the “Transaction”). Net sales of the Business, which comprises the Company’s entire HMH Books & Media segment, for 2020 were approximately $192 million.
The Agreement provides that, for two years following the closing of the Transaction, HMH Sub, together with the other direct and indirect majority owned subsidiaries of the Company, will not engage in a business that is competitive with the Business or solicit employees of the Business.
In the Agreement the Purchaser represents and warrants that it has sufficient funds to perform all of its obligations under the Agreement and to consummate the transactions contemplated by the Agreement, including to pay the entire purchase price to HMH Sub at closing. Pursuant to the Agreement, Parent has guaranteed all obligations of the Purchaser thereunder. The Transaction is subject to customary closing conditions, including the expiration or termination of the waiting periods under the Hart-Scott-Rodino Act. The Company expects the Transaction to close in the second quarter of 2021.
The Agreement provides each of HMH Sub and the Purchaser customary termination rights, including the right for either party to terminate the Agreement if the Transaction has not been consummated by June 24, 2021. However, if the failure of the waiting period under the Hart-Scott-Rodino Act to expire or terminate is the sole reason the Transaction is not consummated by June 24, 2021, HMH Sub can unilaterally elect to extend such deadline to consummate the Transaction an additional 90 days to September 22, 2021.
The Agreement contains customary representations and warranties made by HMH Sub and the Purchaser, all of which terminate at the closing. HMH Sub and the Purchaser have also agreed to comply with covenants during the interim period between the date of the Agreement and the date of the closing of the Transaction. In addition, the Agreement provides that the parties will indemnify each other for certain matters.
The Agreement has been attached as Exhibit 2.1 to this report to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about HMH Sub, the Company, the Purchaser, Parent or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Agreement were made only for the purposes of such agreement and as of specified dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of HMH Sub, the Company, the Purchaser, Parent or any of their respective subsidiaries or affiliates. In addition, the assertions embodied in the representations and warranties contained in the Agreement are qualified by information in a confidential disclosure schedule that the parties have exchanged. Accordingly, investors should not rely on the representations and warranties as characterizations of the actual state of facts, since (i) they were made only as of the date of such agreement or a prior, specified date, (ii) in some cases they are subject to qualifications with respect to materiality, knowledge and/or other matters and (iii) they may be modified in important part by the underlying disclosure schedule. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Agreement, which subsequent information may or may not be fully reflected in HMH Sub’s, the Company’s, the Purchaser’s or Parent’s public disclosures.
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