Big investors press for McGraw-Hill break-up


McGraw-Hill Companies already has its television group up for sale, but a couple of large institutional investors want more. They’re pressing for McGraw-Hill to separate its fast-growing financial businesses, including Standard & Poor’s, from its struggling education division.

JANA Partners, an investment firm headed by Barry Rosenstein and Gary Claar, has already had meetings with McGraw-Hill management and directors to “press for changes to increase shareholder value,” which the Wall Street Journal reports is primarily a proposal to split the company in two.

McGraw-Hill Financial and S&P each reported Q2 revenue and earnings growth in the teens, while McGraw-Hill Education saw declines on both fronts. The Information & Media segment, currently including TV, had an up quarter, but it is the smallest division and there was no indication which side of the proposed split it would land on. Presumably, television would no longer be part of the company by then anyway.

JANA is the investment manager for the Ontario Teachers’ Pension Plan Board and the Canadian pension fund has formally aligned with JANA as a group under SEC rules to pressure McGraw-Hill. They own a combined 5.2% of McGraw-Hill’s stock – slightly more than the 4.7% stake held by the founding McGraw family.

In response to the SEC filings by JANA and the pension fund, McGraw-Hill issued a statement which carefully avoided any direct comment on the idea of splitting the company:

“As stated previously, McGraw-Hill is conducting a comprehensive portfolio review which includes reevaluating its strategic core to ensure it is appropriately allocating capital to generate shareholder value. This process began in the second half of last year with the creation of McGraw-Hill Financial and is expected to continue with additional significant actions in 2011. This process is designed to unlock superior shareholder value and accelerate global growth.
The Company had already announced the planned sale of one of its non-core businesses and the acquisition of two new businesses for its high-performing Platts business. In addition, the Company demonstrated its commitment to leveraging its strong cash flow and balance sheet to return capital to shareholders through the authorization of a new 50 million share repurchase program and has this year already bought back 7.7 million shares. The Company also announced at its second quarter earnings call on July 28 that it is now operating in a vastly improving legal and regulatory environment. The Company is evaluating G&A costs across the corporation to ensure it supports its businesses efficiently and effectively following the portfolio review.”

RBR-TVBR observation: Splits and spin-offs aren’t uncommon and sometimes the major shareholders, including founding families, continue to be major shareholders and directors of both companies. The goal is to create more focused and nimble companies that can grow in their own sector. In recent years we’ve seen such moves by Belo, Scripps, Cablevision, Clear Channel and Gray, just to name a few. Some worked out better than others.