Article First Appeared In The New York Times:
McGraw-Hill is now weighing what to do with one if its oldest businesses: education.
The company has retained an investment bank, Evercore Partners, to explore a possible spinoff of the business, which accounts for more than a third of its revenue, to McGraw-Hill shareholders, people briefed on the matter said Wednesday.
McGraw-Hill could also sell the division, most likely attracting private equity bidders because of its steady cash flow, though the people briefed on the matter said this option was less likely at the moment. They cautioned that no final decisions had been made and that all options remained on the table.
For years, shareholders and others have complained about the company’s stock performance, arguing that the education business has been a drag on the double-digit growth and profit of the company’s financial unit. The education business and the financial services business at McGraw-Hill have different capital and operational requirements, and create few if any synergies, analysts have said.
This year, the company announced it was conducting a comprehensive review of its holdings to ensure it was spending money on the right things. Harold W. McGraw III, the company’s chief executive, has promised a major announcement in the second half of this year, and the company has hired a number of investment banks, including Morgan Stanley and Goldman Sachs, to assist with its review.
People close to the company have said that all options are on the table when it comes to the company’s promised portfolio review. Some have estimated that if the conglomerate were broken up through a spinoff, the company’s share price could soar as much as 20 percent.
The company has made a few announcements already. In June, McGraw-Hill put its television stations on the block. In late 2009, the company sold BusinessWeek to Bloomberg for $5 million. Evercore advised McGraw-Hill on the sale.
But there has been pressure from investors recently amid concerns that McGraw-Hill was moving too slowly in its review, or that it might not take bold enough actions to prune its portfolio. Some have suggested that spinning off Standard & Poor’s could be another option.
The activist hedge fund Jana Partners, in conjunction with the Ontario Teachers’ Pension Plan, recently bought a stake in McGraw-Hill, increasing the pressure on the company to take steps. Jana Partners, which announced its stake this month, has met once with the company for about 40 minutes and plans to meet again next week, the people briefed on the matter said. They said the conversation was cordial.
The hiring of Evercore, however, indicates that the company was taking the review seriously before Jana Partners announced its stake alongside the Canadian pension plan.
With a market value of about $11.7 billion, McGraw-Hill is one of the biggest targets of activist investors this year. And with its rich history of publishing educational books that touch students from kindergarten to professional school, it may also be the best known. And though Mr. McGraw owns less than 4 percent of the company, McGraw-Hill has long been seen as a family business.
