Tuesday, November 27, 2012

McGraw-Hill Education Sale to Apollo Finally Confirmed, for $2.5 Billion


McGraw-Hill is finally unloading their shrinking education publishing division--which is what their shareholders preferred all along--selling it to private equity firm Apollo Global Management for $2.5 billion. The deal is expected to close quickly, either before the end of the year or in early 2013. (Apollo co-founder Leon Black's family recently purchased Phaidon.) Apollo has been considered the leading prospect since July. McGraw Hill's stock rose this morning on relief that fixing the education division will become someone else's problem. Even though the company will take a non-cash impairment charge in the fourth quarter of $450 to $550 million related to the school education group (which some prospective bidders believed was worth little or nothing). MHP also appears to be providing some of the financing for the transaction, telling investors they will hold "$250 million in senior unsecured notes issued by the purchaser at an annual interest rate of 8.5 percent." The company says it expects to have "estimated proceeds of approximately $1.9 billion, net of tax and certain closing adjustments," from the sale.

Unit president and ceo Lloyd "Buzz" Waterhouse says in the announcement, "We are excited about this announcement and what it means for McGraw-Hill Education. Apollo is a leading global alternative investment manager and its affiliated funds have made significant investments in learning companies for more than a decade.  McGraw-Hill Education's expertise and premier brands coupled with Apollo's resources represent a powerful combination."
Throughout the bidding process, leakers had tried to persuade the press that the unit could sell for between $3 billion and $4 billion, even though it was clear that the bidders had a much lower figure in mind. The division had sales of $2.3 billion in the most recent fiscal year, but sales fell 11 percent in the third quarter, reported earlier in November.

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