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McGraw-Hill Explores Sale Of Education Business

01 February, 2012

McGraw-Hill is exploring the possibility of selling its $2.5bn-plus education business, after its previously announced plan to split the division from its Standard & Poor’s financial arm prompted interest from private equity groups, three people familiar with the situation said.

The US group declined to comment, and these people described the expressions of interest as being at an early stage, with no formal financial documents being circulated to potential bidders. Any auction would have to be carefully structured to avoid triggering tax penalties because of the previously-announced spinoff plan.

Analysts on a conference call to discuss McGraw-Hill’s fourth-quarter earnings did not ask Terry McGraw, chairman and chief executive, about the possibility of an education sale, first reported by Mergermarket. Mr McGraw said the aim was still to split the group in the second half of this year.

McGraw-Hill declined to comment on a possible sale of the division. However, one person close to the group said the spinoff remained “plan A”.

McGraw-Hill competes in education with Pearson, the owner of the Financial Times; Cengage, the college publisher bought in 2006 by Apax; and Houghton Mifflin Harcourt, which focuses on the schools market.

Any combination with a rival could face high regulatory hurdles, making private equity interest more likely, said two bankers not connected to the company. Any bidder would need to be prepared to invest as digital technologies including Apple’s iPad change teaching, they added.

“My sense is [McGraw-Hill] is open to all possibilities,” said Peter Appert, a Piper Jaffray analyst. “They’re clearly working towards a spin, but if someone came to them with an offer that was appealing … and if the tax implications worked, I think they’d be open-minded about it.”

A spun-off McGraw-Hill Education would be valued at about $2.5bn, he estimated, suggesting that the group would seek a higher valuation in any sale.

Shares in McGraw-Hill were off 0.7 per cent at $46 after it announced fourth-quarter adjusted earnings up 17 per cent to 63 cents per share before $76m in restructuring and separation charges.

“A solid fourth quarter finish by S&P Capital IQ, S&P Indices, Platts and a market-beating performance in US higher education enabled us to overcome volatile global credit markets and historically-low funding levels in the US elementary- [to] high-school market,” Mr McGraw said.

The group said earnings per share should hit $3.25 to $3.35 in 2012 despite challenging credit markets and tight school budgets. “The guidance for [2012] was frankly incredibly robust,” Mr Appert said, saying this highlighted confidence in being able to cut costs further.

(Additional reporting by Helen Thomas)

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McGraw-Hill Explores Sale Of Education Business

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