McGraw-Hill Cos., owner of Standard & Poor’s, has “underperformed its potential” and should break into four parts, shareholders Jana Partners LLC and Ontario Teachers’ Pension Plan proposed.
The shareholders presented a plan to separate the company into four units — S&P, the S&P index business, information & media, and education — as well as buy back more shares, Jana said late yesterday in a regulatory filing.
McGraw-Hill officials, who met with the shareholders yesterday in New York, didn’t respond to the proposal, said a person with knowledge of the talks, who declined to be named because the discussions haven’t been made public. The company is considering dividing in two, with the education publishing unit being spun off or sold, the person said. Jana and Ontario Teachers’, whose shares are managed by Jana, together own a 5.2 percent stake and said they want to boost shareholder value.
A spokesman for Jana, a New York-based hedge fund, didn’t return a call seeking comment. Lydya Castillo, a spokeswoman for Toronto-based Ontario Teachers’, didn’t return a call.
McGraw-Hill wouldn’t comment on specific talks with shareholders, Patti Rockenwagner, a spokeswoman for the New York-based company, said in an e-mailed statement.
“McGraw-Hill’s portfolio review is well advanced and expected to result in significant actions in the next few months to accelerate global growth, align appropriate cost structures and build shareholder value,” according to the statement.
The company “has consistently underperformed its potential and traded at a sizable discount,” Jana said in the filing. In particular, it said the education unit is a “drag” on the company’s value.
McGraw-Hill education accounted for 39 percent of the company’s 2010 revenue, while contributing only 23 percent of its operating profit, according to data compiled by Bloomberg.
Chief Executive Officer Terry McGraw said last month that the company is conducting a strategic portfolio review. In June, McGraw-Hill said it planned to sell its broadcasting group and hired Morgan Stanley to find a buyer.
Evercore Partners Inc. and Goldman Sachs Group Inc. are also advising McGraw-Hill.
Separately, McGraw-Hill said late yesterday that S&P will replace President Deven Sharma with Citibank NA Chief Operating Officer Douglas Peterson. S&P’s Aug. 5 decision to reduce the U.S. credit rating to AA+ roiled global markets and boosted demand for Treasuries, sending the yield on the 10-year note, the benchmark for home mortgages and car loans, to a record low 2.03 percent.
McGraw-Hill rose 4 cents to $37.04 yesterday in New York Stock Exchange composite trading. The shares have climbed 1.7 percent this year.