McGraw-Hill Companies to split in two


With its TV group already up for sale, McGraw-Hill Companies has completed its overall strategic review and announced plans to split into two public companies. It also announced new cost-cutting measures and acceleration of its stock buyback program.

The restructuring announced Monday (9/12) doesn’t go nearly as far as big investors JANA Partners and the Ontario Teachers’ Pension Plan Board had pressed for – which would have been a four-way split. It is in line with an August report by the Wall Street Journal that McGraw-Hill management was considering a two-way split.

Calling the three-part plan to split, cut costs and buy back shares a comprehensive Growth and Value Plan, McGraw-Hill management said it is drawing up detailed separation plans. It expects to complete the tax-free spin-off of the education business into a separate company by the end of 2012. Before that can happen the plan will have to be approved by the board of directors, receive a ruling from the IRS that it is indeed tax-free and be approved by McGraw-Hill shareholders.

Once split the new companies will be called McGraw-Hill Markets, primarily focused on capital and commodities markets, and McGraw-Hill Education, focused on education services and digital learning. Those are working names for the two companies, so they could yet change.

Current Chairman, President and CEO Harold “Terry” McGraw III will stay with the McGraw-Hill Markets side with those same titles. The company will include Standard & Poor’s, the credit rating service; S&P Indices, the index business; the newly launched S&P Capital IQ, a provider of multi-asset class data, research, benchmarks and analytics; and Platts, the global provider of information and indices in energy, petrochemicals and metals. Combined, the capital and commodities businesses account for approximately 90% of McGraw-Hill Market’s annual revenues.

McGraw-Hill Markets will also include businesses in attractive commercial sectors such as J.D. Power and Associates, a global market research and services company, and leading franchises in the construction and aerospace industries.

McGraw-Hill Markets serves customers in more than 150 countries and expects 2011 revenues of approximately $4 billion with close to 40% from international markets. The company said it expects to drive double-digit growth and profitability by expanding upon and fully exploiting the many operational and strategic synergies that exist among McGraw-Hill Markets’ brands.

“There is a growing need for investors to be able to track price movements across all asset classes. At the same time, there is a dearth of tools which meet this need. This creates an existing and fast-growing opportunity for McGraw-Hill Markets to deliver integrated solutions on commodities, fixed income, equity, credit, and funds that inform strategy and trade ideas on cash, derivatives and volatility indices. When our premier brands are combined into one focused operating company, McGraw-Hill Markets immediately becomes the player with the greatest breadth of capabilities in the financial markets,” said Terry McGraw.

McGraw-Hill Education, the second largest education company in the world, will become an independent business operating in the K-12, higher education and professional education markets. This education services and digital learning company will be well positioned as one of the few companies serving the entire K-12 and higher and professional education markets globally. It offers educational materials online and in print for K-12, supplemental digital services to the elementary and high-school markets, and post-secondary educational resources and digital learning systems to universities and other higher education and professional institutions and organizations worldwide.

McGraw-Hill Education expects revenues of approximately $2.4 billion in 2011. As an independent education company, the company believes it will be able to optimize its solid cash generation capabilities and strong balance sheet to pursue accelerated growth strategies and augment its organic growth with digital services and/or via acquisitions or strategic partnerships.

The search is on for a CEO. Robert Bahash, currently President of the Education segment, will continue as President until the new CEO has been appointed.

RBR-TVBR observation: Since the effort to sell McGraw-Hill Broadcasting is well underway, so it is unlikely that it will still be part of the company when the split comes late next year. The rest of what is now called the Information & Media sector is heading to the McGraw-Hill markets side of the split. It is rather obvious that TV stations would not be a core business for what is envisioned as a company focused on the financial markets.