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KKR, Carlyle Join Race for Thomson Unit-Source

Private equity firms Kohlberg Kravis Roberts and Carlyle Group have joined the race for the text book publishing unit of Canada's Thomson , a source close to the matter said on Monday.

KKR declined to comment, while Carlyle and Thomson officials weren't immediately available for comment.

The pair were competing separately against Apax Partners, Warburg Pincus and a team comprising Blackstone Group, Thomas H. Lee Partners and Bain Capital, The Times reported on Monday without citing sources, adding that bids could come in around $3.5 billion.

Sources close to the process told Reuters in March that Bain, Blackstone and Thomas H. Lee -- former owners of Houghton Mifflin Co. -- were bidding for Thomson Learning.

Germany's Bertelsmann is also mulling teaming up with that bidding group, according to a separate Reuters source.

Other sources close to the negotiations have also confirmed the involvement of Apax Partners and Warburg Pincus, with the two firms bidding separately.

Thomson said last October it would sell its entire education portfolio because it no longer fitted into the electronic publisher's strategy. These assets include its higher education, library reference and Prometric testing and assessment businesses which, collectively, analysts estimate will fetch around $5 billion.

Thomson and Harcourt To Reunite?

A report in the Sunday Telegraph said bidders were also considering the merits of joining Thomson's higher education arm with Reed Elsevier'sHarcourt schools education business to create a U.S. textbook giant.

A merger of Harcourt and Thomson's education assets would create a larger rival to compete with major global players such as UK-based publishing group Pearson and McGraw Hill.

Thomson Learning and Harcourt were part of the same group until 2000, when Harcourt General was bought by Reed.

The Anglo-Dutch publisher kept the school textbook and testing division and Harcourt's science and medical titles and sold the higher education arm to Thomson.

Analysts have said the Reed assets could fetch between $3.2 and $3.8 billion.

Sentiment regarding what Reed and Thomson might get for their assets has been bolstered by Dutch publisher Wolters Kluwerrecently selling its education division to private equity fund Bridgepoint Capital for 774 million euros.

Analysts initially thought the asset would get about 700 million euros.

UBS analysts said on Monday the sale of Reed's education assets could provide a "meaningful catalyst" for a re-rating of the company's shares as investors focus on the performance of the three remaining businesses.

Following a successful sale, Reed would be left with its science and medical business, legal information and services and Reed Business, which provides magazines, exhibitions and marketing services.

Given Reed was trading on just 15.5-times forecast 2008 earnings, the broker said Reed's valuation looked attractive given its defensive growth qualities and relative to its peers on 18- to 20-times earnings.

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