By Joan E. Solsman
McGraw-Hill Cos. (MHP) plans to sell its education arm for $2.5
billion to private-equity firm Apollo Global Management LLC.
The company, which also operates credit rater Standard &
Poor's and financial analysis assets, has long planned to separate
its struggling textbook and digital-learning division by the end of
the year as part of a larger plan to revamp operations. McGraw-Hill
had planned a potential spinoff for the unit that would had made it
its own publicly traded entity but also pursued a sale.
"After carefully considering all of the options for creating
shareholder value, the McGraw-Hill board of directors concluded
that this agreement generates the best value and certainty for our
shareholders and will most favorably position the world-class
assets of McGraw-Hill Education for long-term success," Chairman
and Chief Executive Harold McGraw III said.
Larry Berg, senior partner of Apollo, called the education
division "a marquee business that has been a pioneer in educational
innovation and excellence for over a century."
The companies expect to close the deal late this year or early
next, pending regulatory approval and customary closing
conditions.
With the transaction, McGraw-Hill expect to use estimated
proceeds of $1.9 billion "to sustain its share repurchase program,
to make selective tuck-in acquisitions that enhance McGraw Hill
Financial's portfolio of powerful brands," it said, as well as to
pay off short-term borrowing obligations.
It will book an impairment charge in the fourth quarter of about
$450 million to $550 million as it classifies the group as
discontinued operations.
As part of this transaction, McGraw-Hill will receive $250
million in senior unsecured notes issued by Apollo at an annual
interest rate of 8.5%.
Monday, McGraw-Hill also outlined its picture of how the
independent firm performs. To be renamed McGraw-Hill Financial once
the deal closes, it will have revenue this year of about $4.4
billion with nearly 40% from international markets, the company
said. It will outline next year's guidance when it reports
fourth-quarter earnings.
Earlier this month, McGraw-Hill said costs linked to the plan to
separate education pulled its third-quarter earnings lower in
another quarter in which weakness in that arm undermined strength
in its financial-focused operations.
Shares in McGraw-Hill, after an initial halt before the news,
were up 2.5% at $52.94 in recent trade. The stock has risen 18% so
far this year.
Write to Joan E. Solsman at joan.solsman@dowjones.com
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