Apollo to buy McGraw-Hill education unit for $2.5 billion

NEW YORK, Mon Nov 26, 2012 — McGraw-Hill Companies Inc said it will sell its educational publishing unit to Apollo Global Management LLC for $2.5 billion.

McGraw-Hill expects to record a non-cash impairment charge of about $450 to $550 million in the fourth quarter.

McGraw-Hill said it will realize $1.9 billion of proceeds from the deal, after taxes and certain adjustments, and will use the money to buy back its shares, make “selective tuck-in acquisitions” for its portfolio of financial services businesses and repay short-term borrowings.

McGraw-Hill owns Standard & Poor’s credit rating service, Capital IQ tools for financial analysis and commodity market information services company Platts.

The company announced in September 2011 that it would separate the education and financial services businesses as part of a stepped-up push to increase returns to shareholders. The restructuring plan was announced after institutional investors argued publicly that the company would be worth more if split up.

Like other publishers, the education business has been under pressure to adapt its content to digital delivery. While such transformations hold the potential to ultimately reduce costs, they are also requiring massive changes in what employees do and how products are sold.

Supreme Court rejects workers’ 401(k) stock drop appeals

WASHINGTON, Mon Oct 15, 2012 – The Supreme Court refused on Monday to review a pair of cases against Citigroup Inc. and McGraw-Hill Cos. Inc. brought by thousands of employees whose retirement plans lost money invested in their employers’ stocks.

The high court, without comment, rejected the workers’ claims that the companies should not have offered their own stock in their retirement plans because of Citi’s subprime mortgage exposure and problems at McGraw-Hill’s Standard & Poor’s unit.

The Citigroup employees sued after the bank’s share price fell 52 percent from Jan. 1, 2007, to Jan. 15, 2008, when it reported an $18.1 billion subprime-related loss. They accused the bank of consistently playing down its exposure to subprime mortgages and other toxic debt.

In a similar case against McGraw-Hill, workers accused the company of violating its fiduciary duties by offering its own stock, despite problems with its Standard & Poor’s unit’s ratings practices.

The workers in both cases accused the companies of breaching their duties under the federal Employee Retirement Income Security Act of 1974, known as ERISA.

In a pair of rulings last October, the 2nd U.S. Court of Appeals in New York said the companies did not abuse their discretion in offering the stock and had no duty to disclose nonpublic information about how they expected the stock to perform.

SEC mulls charges against McGraw Hill in collateralized debt offering case

NEW YORK ― McGraw-Hill Cos. Inc. said U.S. regulators may charge its Standard & Poor’s ratings unit with violating federal securities laws with ratings on a repackaged mortgage bond in 2007.

The company said it received a Wells Notice from the U.S. Securities and Exchange Commission that commission staff may recommend a civil lawsuit against the unit for a rating on 2007 collateralized debt offering known as “Delphinus CDO 2007-1.” The staff may recommend that the SEC seek monetary penalties, the company said in a statement today.

Regulators send Wells Notices to companies or people to give them a chance to argue why government should not file an enforcement action against them.

The company said it received the notice on Sept. 22.

The SEC’s investigation comes as McGraw-Hill prepares to split into two publicly-traded companies, one holding Standard & Poor’s and market information services and another holding its textbook publishing company.

Institutional shareholders, led by Jana Partners, have pushed the company to completely separate the S&P ratings business from the information services.

S&P issued the CDO rating in question at the end of the credit boom that carried mortgage lending and house prices to unsustainable heights. S&P put triple-A credit ratings on many mortgage-related securities which later went into default when house prices collapsed.

S&P’s failures with structured finance ratings were recently cited by Washington politicians as reason to doubt the agency’s downgrade of U.S. government debt in August from triple-A.

Publisher McGraw-Hill to split into two listed companies

NEW YORK ― McGraw-Hill Cos. Inc. plans to split into two public companies, with one holding its Standard & Poor’s ratings and index businesses and the other holding its textbook publishing units.

The move, announced Monday, is a major step toward the breakup and reorganization of the mini-conglomerate that was called for by activist investors last month in a meeting with McGraw-Hill directors.

The investors — Jana Partners LLC, a hedge fund, and the Ontario Teacher’s Pension Fund — argued that breaking up the company would increase its value to shareholders.

A Jana spokesman did not immediately respond to a request for comment.

The company’s shares were up 2.6 percent to $39.74 in premarket trade.

Terry McGraw, chairman and chief executive of the company and a great-grandson of the founder, will lead McGraw-Hill Markets, which will hold the Standard & Poor’s credit rating business, S&P’s market index business and S&P Capital IQ, which provides data and analytical tools on companies and markets.

The company said it has started a search for a new CEO for McGraw-Hill Education, which will contain the textbook publishing and education units. The current head of those businesses is Robert Bahash, 66, a long-time chief financial officer of the corporation who stepped into his current post last year after the top education executive left.

The break-up, which will be structured as a tax-free spinoff of the education business to McGraw-Hill shareholders, is expected to be completed by the end of 2012, the company said in a statement.

The markets businesses will have about $4 billion of revenue in 2011, and the education businesses will have about $2.4 billion in revenue, it said.

McGraw-Hill said it will make significantly cut from $1 billion of current corporate expenses and administrative and technology costs.

Evercore and Goldman Sachs are advising on the spinoff.

The company said it would speed up share repurchases to a total of $1 billion in 2011. It said it has bought back $541 million of stock so far this year.

S&P replaces president with Citibank exec after U.S. downgrade

NEW YORK ― The chief of Standard & Poor’s will step down next month, to be replaced by a senior Citibank executive, in a move announced a few weeks after the credit rating agency downgraded U.S. government debt and sparked a row with Washington.

S&P’s parent, McGraw-Hill Companies Inc, said on Tuesday that Deven Sharma, who has served as S&P president since 2007, would step down on Sept. 12, to be succeeded by Citibank chief operating officer Douglas Peterson.

“S&P will continue to produce ratings that are comparable, forward looking and transparent,” McGraw-Hill said in a statement, adding that Sharma would work on a strategic portfolio review for the group until leaving at year-end.

The U.S. downgrade on August 5 helped lead to the biggest sell-off in share markets since the global financial crisis three years earlier and sparked a row with the U.S. Treasury over some of the agency’s calculations in arriving at the new rating.

The U.S. Justice Department is also investigating the ratings agency over its actions on mortgages leading up to the 2008-2009 crisis, a source familiar with the matter told Reuters last week.

But The Financial Times, which first reported the news of Sharma’s resignation, quoted unnamed sources on Tuesday as saying his departure was unrelated to the downgrade or the Justice Department investigation.

The board of McGraw-Hill Companies made the decision to replace Sharma at a meeting where it also discussed its ongoing strategic review on Monday, the Financial Times said.

McGraw-Hill directors and executives met on Monday with Jana Partners LLC, a hedge fund, and the Ontario Teacher’s Pension Fund to hear their arguments that the company should be broken up.