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Houghton Mifflin to Buy Reed's Harcourt for $4 Billion

Reuters
Monday, 16 Jul 2007 | 2:47 PM ET

Anglo-Dutch publisher Reed Elsevier agreed Monday to sell its education arm Harcourt to rival Houghton Mifflin for $4 billion, creating a giant U.S. textbook firm in an industry undergoing a major ownership shift.

Reed Elsevier, like its publishing conglomerate peers, is getting out of education to focus on areas such as legal and science, which are growing faster and are more profitable because they have adapted to an electronic model more quickly than have school materials.

Boston-based Houghton said it is paying $3.7 billion cash and $300 million of common stock of its privately owned Houghton Mifflin Riverdeep Group parent company.

The combined business will be led by Tony Lucki, the chairman and chief executive of Houghton Mifflin and the former CEO of Harcourt Education.

"Together, we will be better positioned to meet the changing needs of educators and students in a wider range of subjects, states and school districts," Lucki said.

Harcourt publishes textbooks and related educational supplements for students from pre-kindergarten to high school.

It also produces adult education, reference, religious and online learning materials.

The deal is expected to close in late 2007 or early 2008 after regulatory reviews are completed, the companies said. ABN Amro analyst Paul Gooden said the price tag is a bit higher than his team's anticipated value of $3.7 billion.

"Since we put our forecast out, the dollar has gone against them a little bit; but ($4 billion) is slightly better than expected," he said.

Returning Proceeds

Gooden also said there was a chance Reed Elsevier would return more than the net proceeds from selling its education assets to shareholders, since the company would be less exposed to cyclical factors.

Reed Elsevier repeated its plans to return the education unit proceeds to shareholders by way of a special dividend. It expects exiting education to boost earnings per share on a constant currency basis by at least 10 percent annually.

UBS advised Reed Elsevier, while Citigroup, Lehman Brothers and Credit Suisse advised Houghton and are providing debt financing for the transaction.

Reed's shares closed in London up 1.7 percent at 675 pence.

Irish educational software publisher Riverdeep, headed by Irish entrepreneur Barry O'Callaghan, bought textbook publisher Houghton Mifflin from a group of private equity firms last year for $1.75 billion. Both Houghton Mifflin and Harcourt make nearly all of their sales in the United States.

Riverdeep is rated B3 by Moody's Investors Service and B- by Standard & Poors.

Reed earlier sold Harcourt's international and assessment units to Pearson for $950 million.

The total sale of Harcourt Education would represent a multiple of 20.8 times 2006 adjusted operating profit, Reed said. Total revenue was $1.6 billion last year. Reed paid $2.1 billion for the Harcourt education business in July 2001.

Thomson , which is buying Reuters Group , sold its education assets to Apax Partners and Canada's OMERS Capital Partners for $7.75 billion earlier this year.

Dutch publisher Wolters Kluwer also sold its education division to private equity firm Bridgepoint for about $1 billion last month.

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