Strong interest in buying McGraw-Hill TV stations


A little over a month after McGraw-Hill put its four-station TV group up for sale parent company CEO Terry McGraw-Hill told Wall Street analysts Thursday (7/28) that there is a lot of interest from potential buyers. He did not offer any timeframe for announcing a deal.

“There has been a very strong response to our announcement from financial and non-financial buyers. Based on the level of interest and the quality of firms that we’re now engaging with, we’re very optimistic about the outcome of this process,” McGraw said as he reported on Q2 financial results.

The CEO said the decision to sell the broadcasting group provides investors with a “window” into how McGraw-Hill is approaching its ongoing review of its business portfolio. “Broadcasting has been a part of the company – an important part of the company – for 40 years. We have nurtured this business that has made a solid contribution to our bottom line. But as we examined our enterprise and assessed the future, we determined that the broadcasting group does not have the characteristics we define as core. It lacks scale. It’s cyclical. It’s advertising-based. And the growth prospects seem somewhat limited. As a result, it became a candidate for divestiture,” McGraw said. “We also believe this action is better for our associates in the broadcasting business, as they hopefully will be a part of an organization with greater capabilities in this space,” he added.

For Q2 McGraw-Hill reported that TV revenues were down 6% to $23.8 million. That decline was attributed to the lack of political advertising in a non-election year. Retransmission revenues were up, but the company did not provide specifics.

Overall, McGraw-Hill reported that Q2 revenues rose 7.2% to $1.6 billion. Net income grew 10.5% to $211.1 million and earnings per share increased 11.9% to 68 cents.

TV is part of the Information & Media segment of McGraw-Hill, which is now dominated by subscription business-to-business products with nearly 10 times the revenues of the TV group. Revenues for Information & Media were up 9.7% to $246 million and the operating profit grew 5.9% to $50.3 million.

After reporting a “solid” first half, McGraw-Hill is optimistic about the second half of 2011. It is sticking with its guidance that earnings per share for the whole year will be $2.79-2.89, but is now telling Wall Street to expect the final number to be in the high end of that range.

RBR-TVBR observation: Get bigger or get out has long been the advice for large companies who have small positions in a particular industry. For McGraw-Hill, television accounted for slightly less that 1.5% of total revenues in Q2. Simply put, if TV revenues and profits soared it would have no noticeable impact on the company’s bottom line, so it makes sense to sell the stations to a company more focused on the broadcasting business.

McGraw-Hill has been aggressively using its excess cash to buy back its own shares, spending more than $300 million in the first half of this year, along with looking for acquisitions in its core businesses. So, if our report that the TV sale could approach $400 million proves correct, the company will have no problem figuring out a use for the cash.

Previous coverage:

McGraw-Hill hangs for sale sign on TV group

Good buyer interest expected for McGraw-Hill TV stations