McGraw-Hill Cos., challenged by Barry Rosenstein of Jana Partners LLC to change its strategy, said it will split into two separate companies focused on global markets and education.
The transaction is expected to be completed by the end of 2012 through a tax-free spinoff of the education unit to shareholders, the New York-based company said today in a statement. McGraw-Hill Markets will include Standard & Poor’s and J.D. Power and Associates and be led by Chief Executive Officer Terry McGraw.
McGraw began a strategic review earlier this year of the company’s businesses. Revenue from the education unit fell the past three quarters, and McGraw said in July that its broadcast group lacked scale and had limited growth prospects. Jana Partners, a New York-based hedge fund, said on August 1 that it met with company management to discuss corporate structure and future plans.
As part of the split, McGraw-Hill will seek to cut more than $1 billion of corporate expenses and administrative and technology costs. The company is also searching for a CEO for McGraw-Hill Education, which expects to have revenue of about $2.4 billion this year.
$4 Billion Revenue
McGraw-Hill Markets will also include Platts, a provider of information and indices in energy, petrochemicals and metals. The new company anticipates 2011 revenue of about $4 billion. McGraw-Hill also said it will accelerate the pace of a share buyback to $1 billion for the year, with $540.6 million repurchased year-to-date.
McGraw-Hill, founded in 1888 by McGraw’s great-grandfather, James H. McGraw, earned about 87 percent of its $358.8 million in operating income in the second quarter from S&P and its financial-information unit. The company has been publishing college textbooks since 1927, and it formed the TV unit in 1972. In 2009, McGraw-Hill agreed to sell BusinessWeek magazine to Bloomberg LP, the parent of Bloomberg News.
Jana Partners, which manages about $3 billion, holds a 5.2 percent stake in McGraw-Hill, together with the Ontario Teachers’ Pension Plan, according to a regulatory filing.
Goldman Sachs Group Inc. and Evercore Partners Inc. advised McGraw-Hill.