McGraw-Hill Companies, Inc.
), a diversified publisher and provider of financial information,
and also a provider of media services, recently entered into an
agreement with Western Governors University (WGU) to develop a
As per the pay-for-performance model, McGraw-Hill will receive
certain variable payments from each WGU student adopting the
technologies and services provided by McGraw-Hill Education
Under this partnership, McGraw-Hill will receive a fixed
discounted amount for providing study materials to the students and
is also entitled for an an extra premium from WGU for each student
who uses the MHE technology to pass their course.
According to the deal, MHE is supposed to provide e-books and
accessibility to various educational sites to WGU's online
students. Through this deal, students can improve their performance
by utilizing McGraw-Hill LearnSmart online technology, designed
specifically to enhance the student's performance.
Digital products and services are now becoming an integral part
of both higher education and professional markets. The demand for
online study tools (e.g. McGraw-Hill Connect series, McGraw-Hill's
LearnSmart, Tegrity) is increasing among college and university
students. The market for e-books, mobile devices and online
subscription services is also growing.
As a result, McGraw-Hill is banking on this unique model as it
has the potential to impart education in an effective way while
keeping costs down. Moreover, management believes that this deal
will benefit the nation given the utility of MHE's smart
educational tools with the support of the universities who are keen
to adapt new business models that impart knowledge effectively.
The new business model will provide operational benefits to
institutions and learning companies and augment the students'
performance as well.
Western Governors University is popular for its innovative style
of imparting knowledge to their students. Therefore, the recent
deal with McGraw-Hill supports WGU style of providing education to
students where students gain knowledge effectively rather than
gaining credit hours by attending classes.
McGraw-Hill recently disposed of its Broadcasting Group in order
to re-evaluate its portfolio of core businesses and concentrate
more on global brands, thereby enhancing shareholders' value
through proper capital allocation. The company believes that the
business was cyclical and advertising-based, and therefore
could not be considered its core business.
McGraw-Hill's results could be negatively impacted by a lower
volume of debt securities issued in the capital markets. Financial
distress of the recent kind could either dent investor's demand for
debt securities or make issuers reluctant to issue such securities.
In addition, increase in interest rates or credit spreads, may also
adversely affect the general level of debt issuance.
Therefore, we have a long-term Neutral recommendation on
McGraw-Hill, which competes with
). Moreover, the company carries a Zacks #3 Rank, which translates
into a short-term Hold rating.
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