The McGraw-Hill Companies Inc
) recently announced that it has entered into an agreement with
Apollo Global Management LLC
) to divest its education division for $2.5 billion.
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The move is a strategic attempt on the company's behalf to
restructure its portfolio of businesses and concentrate more on
high growth operations, thereby enhancing shareholder value
through proper capital allocation.
The company expects to close the deal by the year end or early
2013 and will receive $250 million in senior unsecured notes,
carrying an annual coupon of 8.5%.
What led to the Decision?
This company has been scrutinizing its business segments for
sometime as it lost substantial market value over the last 5
years. To add to its woes, its rating agency was criticized for
its decision to downgrade the U.S. economy. Further, the New York
based hedge fund, Jana Partners and the Ontario Teachers' Pension
Plan, were pushing the company to split into four separate
In addition, the company's education division has been
confronting shrinking revenues due to reduced spending on
textbooks by the government. Further, the company is facing
execution risk associated with its plans to develop its education
division into a subscription-based model through digital
The Goldman Sachs Group Inc
Evercore Partners Inc
) as the financial advisors to guide the company through the
Birth of McGraw-Hill Financial
McGraw-Hill stated that the company will be known as McGraw Hill
Financial, upon the completion of the deal and will primarily
focus on capital and commodities markets and will include iconic
brands like S&P Ratings, S&P Capital IQ, S&P Indices,
Platts and Commercial Markets.
The company added that it expects revenues of approximately $4.4
billion from McGraw-Financial in 2012 with approximately 40% of
it coming from international avenues.
Moving ahead, McGraw-Hill expects to bear the impairment charges
of approximately $450 million to $550 million in the fourth
quarter of 2012 related to the sale. Moreover, the company
will utilize the proceeds from sales (approximately $1.9 billion
net of tax) to buyback shares, reduce short-term debt obligations
and for strategic acquisitions.
Currently, we have a long-term 'Neutral' rating on McGraw-Hill,
which competes with
). Moreover, the company holds a Zacks #3 Rank, which translates
into a short-term 'Hold' recommendation.