The McGraw-Hill Companies, Inc.(NYSE:MHP) has agreed to sell its education wing to Apollo Global Management LLC in lieu of $2.5 billion. This contract will take CEO Harold Terry McGraw III one step closer to taking apart his 124 year old company.
The transaction is predicted to wrap up by the end of this year or by the beginning of 2013, as revealed by the company in a statement. Over a year ago, McGraw Hill had declared its plans of splitting its business into two, one of which would be focusing on educational publishing and the other one on financial operations of the company, including Standard & Poor’s, the largest credit rating company in the world.
The sales of education business have shot down in seven of the previous 8 quarters as states and cities have decided on cutting down school budgets for textbooks. Apollo was co-founded by Leon Black over 20 years back. It is purchasing the division as the industry reinvents its way of publishing contents.
The unit is switching to a more subscription-based business model that would have more predictable revenues and could conceivably have better productivity since one could eliminate the expenses of manufacturing and inventory, as told by a Piper Jaffray analyst, Peter Appert. He said it is all about figuring out methods of distributing content and broadening its appeal in the market.
The education division has reported sales of $2.3 billion previous year and publishes in over 65 languages. McGraw Hill has weighed a sale of the business since the previous year, when hedge-fund shareholder Jana Partners had offered a strategy for breakup.
McGraw Hill has been performing poorly since quite some time and has traded at a considerable discount, as told by Jana in August of 2011.
Appert said that most shareholders looking at the pure-play new McGraw Hill perceive a business that has better margins, better returns on capital and stronger free slow of cash than the education business does.