Concurrent to the sale of its education division, The McGraw-Hill Companies Inc. (MHP) resumed its accelerated share repurchase program with $500 million.
McGraw-Hill will be buying back shares using a portion of the proceeds it received from the divestiture of its education segment. The company had earlier stated that it expects to utilize the proceeds from sales (approximately $1.9 billion net of tax) to buyback shares, reduce short-term debt obligations and for strategic acquisitions.
McGraw-Hill recently completed the divestiture of its education division to the Apollo Global Management LLC (APO) for $2.4 billion cash.
As part of its “Growth and Value Plan”, McGraw-Hill returned significant capital to the investors in the recent past. The company repurchased $1.5 billion worth of shares in 2011, while it bought back $300 million worth of shares in 2012. Moreover, it distributed $300 million in dividends in 2012 and paid a special dividend of $700 million in Dec 2012.
At the end of the fourth quarter of 2012, McGraw-Hill had approximately 16.9 million shares remaining under its existing share repurchase program. Taking into account the impact of this new accelerated share repurchase program, the company will have roughly 8 million shares remaining under its current buy back authorization.
McGraw-Hill has a healthy capital and cash position, which facilitates it to maintain an efficient capital deployment strategy. Apart from share buybacks and dividend payments, the company channels its excess capital toward accretive acquisitions.
McGraw-Hill has made several strategic investments in its core businesses to drive long-term profitability. The formation of S&P Dow Jones Indices coupled with S&P Capital IQ’s acquisitions of Credit Market Analysis Limited, QuantHouse, R2 Financial Technologies and TheMarkets.com position it well against its competitors, Thomson Reuters Corporation (TRI), FactSet Research Systems Inc. (FDS) and Bloomberg to grab a wider market through superior functionality and investor oriented services and in turn help boost the top- and bottom-line results of the company.
Going forward, McGraw-Hill expects revenues to increase in the high single-digit, while adjusted earnings are forecasted to be in the range of $3.10 – $3.20 per share for 2013, up 15% year over year.
Despite these positives, shares of McGraw-Hill hold a Zacks Rank #4 (Sell) as the $5 billion civil fraud case against S&P ratings by the U.S. Department of Justice remains a drag on the stock.
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