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To lift stock, McGraw-Hill splits operations

Education sector now separate

The remaining part of McGraw-Hill will concentrate on the higher-growth operations of Standard & Poor’s. The remaining part of McGraw-Hill will concentrate on the higher-growth operations of Standard & Poor’s. (Justin Sullivan/Getty Images)
By Azam Ahmed and Michael J. De La Merced
New York Times / September 13, 2011

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McGraw-Hill said yesterday that it would break itself up, spinning off its education division to focus on its business information unit in an effort to lift its stagnant share price.

The remaining business will concentrate on the higher-growth operations of Standard & Poor’s, along with the financial data provider Capital IQ and the energy and metals information service Platts. McGraw-Hill also said that it would cut costs and buy back $1 billion in stock this year.

The move may put pressure on other companies to evaluate the future of their own education arms. One such company facing questions from restive shareholders has been The Washington Post Co., which owns the Kaplan education business.

This has been a busy year for corporate breakups, as companies try to generate greater returns for their shareholders amid sluggish markets and a weak economy. More than a dozen companies have announced plans for splits this year, including Sara Lee, Kraft Foods, and ConocoPhillips. Several, like Kraft and now McGraw-Hill, are splitting their operations into a high-growth operation and a lower-growth one that nonetheless generates steady profits and could pay a big dividend.

For McGraw-Hill, its announcement yesterday was the culmination of a business review it had conducted for nearly a year in response to shareholder complaints about the company’s stock price.

This summer, Jana Partners, an activist hedge fund, and the Ontario Teachers’ Pension Plan took a big stake in the company and added to the pressure for a major overhaul. Jana and the Canadian pension fund met with McGraw-Hill executives last month and presented a more ambitious breakup plan - a four-way split.

A representative for Jana said yesterday that the hedge fund was pleased by the company’s actions, although it would “review the scope and impact of these steps as well as other potential steps to unlock shareholder value.’’

Still, a bigger breakup of McGraw-Hill is not on the table, according to people briefed on the matter who were not authorized to speak publicly.

In a conference call, Harold McGraw III, the company’s chairman, president, and chief executive, said, “Today’s announcement is a significant milestone - one more - in the history of our 122-year-old company, which has always been dedicated to the growth of societies and the advancement of knowledge.’’

McGraw-Hill shares rose 4 percent, to $40.26, yesterday.

Analysts have estimated that if the company split off its various parts, including the education unit, the collective share prices could trade as much as 20 percent higher.

In spinning off the education unit, McGraw-Hill is shedding one of its best-known businesses. Begun in 1888 with The American Journal of Railway Appliances, the company has since grown into a publishing conglomerate with education, media, and financial data units.

Many of those operations arose from acquisitions. McGraw-Hill purchased an academic publisher in 1952 to help form its education business, while it bought Platts in 1953 and Standard& Poor’s in 1966.