In September 2011, with the intent of boosting the shareholders value, The McGraw-Hill Companies Inc. (MHP) announced extensive growth and value measures, including its split into two independent entities, McGraw-Hill Financial and McGraw-Hill Education.
Recently, the company updated its growth and value plan and announced several strategic measures to reduce cost while boosting its shareholders value.
Focus Remains on Cost Reduction
Earlier in September, the company announced that it will focus on abridging costs drastically to ensure competent operating channels. Moreover, McGraw-Hill stated that it plans to save approximately $100 million through cost reduction programs.
Building on the move, McGraw-Hill announced notable changes across the company to enhance margins and plans to spend on feasible projects for growth.
Citing a business model shift, McGraw-Hill will slash approximately 10% or 550 jobs at its education division, including 20% job cuts among its executive ranks. The company plans to develop its education division more into a subscription-based model through capitalizing on growth opportunities and developing education services and digital products and solutions.
McGraw-Hill will lower the head counts by the end of the fourth quarter of fiscal 2011, while some actions are expected to close in the first half of 2012.
Moreover, to restrict its future liabilities and better forecast its costs related to retirement plan, McGraw-Hill will be altering its pension program to bring its retirement program at par with market practice. The company will freeze its defined-benefit pension plan as of April 1, 2012.
McGraw-Hill added that the above moves will generate approximately $50 million in annual cost savings, which will supplement the company to surpass its earlier announced cost savings of $100 million.
Cheering Shareholders
McGraw-Hill completed its earlier announced $1 billion share buyback plan. The company repurchased 24.7 million shares at an average price of $40.48 a share, aggregating to $1 billion in 2011.
Further, the company announced a new $500 million accelerated share buyback program and plans to buy a major chunk of it before year end.
What Led to the Separation?
Since last year, the company has been reviewing its business segments and the call was obvious as it lost a substantial market value in last 5 years and its rating agency was under fire for its decision to downgrade the U.S. economy.
Moreover, the New Yorkbased hedge fund, Jana Partners and the Ontario Teachers' Pension Plan, holding approximately 5.2% joint stake in the company McGraw-Hill, were pushing the company to split into four separate companies.
As per its plan, the company aims to create two "focused companies” with optimal-size capital and cost arrangement for amplifying client commitment and improving strategic and economic suppleness while increasing management’s focus and responsibility.
McGraw-Hill added that it has engaged The Goldman Sachs Group Inc. (GS) and Evercore Partners Inc. (EVR) as the financial advisors to guide the company during the evaluation period.
Getting to the Companies
McGraw-Hill Financial will focus on capital and commodities markets and will include the iconic brands like S&P Ratings, S&P Capital IQ, S&P Indices, Platts and Commercial Markets.
The company added that it expects revenues of approximately $4 billion from McGraw-Financial in fiscal 2011 with approximately 40% of it coming from international avenues.
McGraw-Hill Education will focus on education services and digital learning and will speed up growth strategies while supplementing its growth through digital services and buyouts.
The company stated that it expects McGraw-Hill Education to generate revenues of approximately $2.4 billion in fiscal 2011.
Summing Up
Going ahead, McGraw-Hill expects to bear the restructuring charge in the fourth quarter of fiscal 2011. Moreover, in a separate story, McGraw-Hill announced the appointment of Richard Thornburgh, current vice-chairman of Corsair Capital, to its board.
The McGraw-Hill Companies is a diversified publisher and provider of financial information, offering media services to customers in over 40 countries.
Currently, we have a long-term 'Neutral' rating on McGraw-Hill, which competes with Pearson plc (PSO). Moreover, the company holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.
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