McGraw-Hill Cos. (MHP) has agreed to sell its education unit to
private equity firm Apollo Global Management for $2.5 billion,
capping a process that took more than a year to complete.
The sale ends a previously announced plan by McGraw-Hill to take
the education unit public. McGraw-Hill said in September 2011 that
it intended to hive off its education unit from its financial
services business, whose holdings include its well-known Standard
& Poor's bond-rating service. While it pursued a possible
spinoff, it also conducted a sale process.
After reviewing final offers--including one from private-equity
firm Apax Partners, the majority owner of Cengage Learning, which
publishes textbooks primarily for the college market--McGraw-Hill
entered into exclusive talks with Apollo in November. Apollo was
the highest bidder.
"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," said Harold
McGraw III, chairman, president and chief executive of McGraw-Hill
Cos., in a statement.
The final sale price is lower than McGraw-Hill had once hoped to
get for its education business, reflecting the continued
difficulties of the education business in general. On the K-12
front, states have cut back significantly on their textbook
spending because of the difficult economy while the higher
education business is undergoing a digital transition that has
attracted a number of aggressive new companies offering educational
products and services.
McGraw-Hill Education generated $836 million in revenue for the
third quarter, ended Sept. 30, down 11% from the year-earlier
period, and operating profit declined 20% to $253 million. In
addition to a weak K-12 market, McGraw-Hill Education said that
revenue at each component of its higher education, professional and
international group had declined during the quarter.
The education market has proved challenging for some equity
investors. In June, for example, Houghton Mifflin Harcourt
Publishing Co. emerged from a monthlong prepackaged financial
restructuring that largely wiped out original equity investors.
Apollo, however, sees opportunities to bolster the McGraw-Hill
Education brand as education takes on a more technological
profile.
"We look forward to leveraging the company's leading portfolio
of trusted brands and innovative digital learning solutions to
drive growth through the ongoing convergence of education and
technology on a global basis," said Larry Berg, senior partner at
Apollo, in a statement.
The deal is expected to close late next month or in early 2013,
pending regulatory approval. After the sale is completed,
McGraw-Hill is changing its name to McGraw Hill Financial. It is
projecting 2012 revenue of about $4.4 billion. Mr. McGraw will run
the new company.
Write to Jeffrey A. Trachtenberg at
jeffrey.trachtenberg@wsj.com
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