Sun, Jan 25, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Jana Partners, pension fund push for changes at McGraw-Hill

Tuesday, August 02, 2011

Harold McGraw III
Opalesque Industry Update – New York-based hedge fund firm Jana Partners LLC, together with Ontario Teachers' Pension Fund are pushing for a corporate overhaul at McGraw-Hill, the educational books publisher and owner of Standard & Poor’s. This very push could eventually lead to the break up of the conglomerate, various media reports said.

In a regulatory filing, Jana Partners said it had discussed with McGraw-Hill “business, corporate structure, operations, management and board composition, strategy and future plans.” The discussions occurred after Jana and Ontario Teachers raised their stakes in the $12.5bn publisher to 5.2%. Jana holds a 2.9% stake, while the pension fund owns 2.3%.

The company’s Chairman and CEO Harold W. McGraw III owns less than 4% of the company, although the company has been seen as a family business for more than 100 years, since it was founded by his great-grandfather. In 1979, the company, under McGraw’s father, was faced with a similar challenge when he was involved in a messy battle with American Express.

A separate report by the New York Times, citing data from FactSet Research, disclosed that McGraw-Hill is the biggest target of investors this year because of its rich history of publishing educational books used from kindergarten to professional education.

Recently, McGraw-Hill announced plans to divest some of its businesses that are not showing profits. Its Standard & Poor’s ratings agency has produced double-digit growth in sales and profit, but the firm’s book publishing business has not been performing.

Douglas Arthur, an analyst at Evercore Partners Inc., told Bloomberg that the New York-based publisher had announced in June that it would sell its broadcasting unit because its growth prospects were not encouraging. Arthur added: “This is a company that has been a mini-conglomerate of information database businesses, none of which are all that related. The education business is capital intensive, low margin and plodding in growth.”

News of the rise in Jana’s and Ontario’s stakes pushed McGraw-Hills’ shares up to $43.51 in late trading, an increase of 5% from Monday’s close at $41.41 per share. Despite the rise in value, McGraw-Hills share were still below its peak of nearly $71 in 2007.

Mounting pressure
A report by Reuters described the latest moves by Jana and Ontario as an added pressure on McGraw-Hills management to overhaul its business. Jason Ware, an equity analyst with Salt Lake City-based Albion Financial Group told Reuters: "This is a kick in the pants. It brings a little higher sense of urgency."

Peter Appert, a Piper Jaffray & Co analyst, commented that McGraw-Hill could imitate the business model of Dun & Bradstreet which spun off major business units when faced with mounting pressures from investors to increase shareholder value. In 2000, Dun & Bradstreet Corp spun off Moody's Corp, a ratings agency and a direct competitor to Standard & Poor's.

Investors often find it difficult to size up the true value of conglomerates because it requires expertise in different industries. Since the 1980s, activist investors have reportedly been raiding.

The New York Times further revealed that representatives of Jana and McGraw-Hill met two weeks ago and that McGraw-Hill is open to all the options laid out on the table. Another round of meeting is scheduled next week with Jana and the Ontario Teachers’ Pension, the report added.

Some insiders are predicting that an agreement to sell off or break up some of McGraw-Hill’s units is in the pipeline. These includes the spin off of profitable financial services such as Standard and Poor’s from the education business that has been on the decline.
Precy Dumlao


Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Commodities - Druckenmiller alums at PointState make $1 billion on oil, Andurand Capital sees oil sliding to $40[more]

    Druckenmiller alums at PointState make $1 billion on oil From Bloomberg.com: Hedge fund manager Zach Schreiber stood on stage at Avery Fisher Hall in New York eight months ago and made a bold prediction. “We believe crude oil is going lower -- much lower,” Schreiber, 42, told the audienc

  2. Investing - David Einhorn discloses a new position in Time Warner, Canyon trimming bets on mortgage bonds after making $7bn[more]

    David Einhorn discloses a new position in Time Warner From FTLeavenworthlamp.com: …Einhorn also disclosed a new position in Time Warner. "Since 2009, TWX has refocused its business into a collection of high quality assets including basic cable networks (Turner and CNN), a movie studio (

  3. Top performing private equity firms you should invest in[more]

    Komfie Manalo, Opalesque Asia: Professor Oliver Gottschalg of Paris-based HEC Business School, also known as Ecole des Hautes Etudes Commerciales de Paris has released his annual ranking of the top performing private equity firms. The 2014 HEC-DowJones Private Equity Performance Ranking

  4. Comment - Why invest in hedge funds if they don't outperform the market?[more]

    From Forbes.com: Hedge funds have always been a bit exotic and an enigma to some, but bottom line they are supposed to produce good returns using a range of strategies including global macro, event driven and relative value (arbitrage). And, sophisticated or high-net-worth individuals (HNWIs) could

  5. Owen Li 'truly sorry' for blowing up $100m of hedge fund’s assets[more]

    From CNBC.com: A hedge fund manager told clients he is "truly sorry" for losing virtually all their money. Owen Li, the founder of Canarsie Capital in New York, said Tuesday he had lost all but $200,000 of the firm's capital—down from the roughly $100 million it ran as of late March. "I take r