McGraw Hill Sticks to Value Plan

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The McGraw-Hill Companies Inc. (MHP) recently updated its growth and value plan through filing an initial Form 10 Registration Statement with the U.S. Securities and Exchange Commission.

McGraw-Hill had initially announced its extensive growth and value measures in September last year, intending to accelerate growth and boost shareholder value. The plan included splitting McGraw-Hill into two independent entities, McGraw-Hill Financial and McGraw-Hill Education.

In the recent filing, the company provided complete future plans for its new McGraw-Hill Education Company. Per the filing, shareholders of the company will receive one share of the new education company for every three shares held by them.

The filing also detailed that McGraw-Hill Education will reflect $2.4 billion in assets along with $600 million in debt. In connection with the financing plans for the split, the company plans to issue senior notes worth $400 million. The company also will enter into borrowing arrangements including $200 million term loan and $350 million revolving credit facility. The company will also pay $500 million to McGraw-Hill through dividend.

Through its growth and value plan the company’s primary strategy is to create two "focused companies” with optimal-size capital and cost arrangement for enhancing client commitment while increasing management’s focus and responsibility. Further, management believes the split will provide each of the independent companies with some synergies and benefits.

McGraw-Hill Education, which represents 34% of 2011 total revenue of the combined company, consists of two operating groups - the School Education Group (:SEG) serving the elementary, and elementary high school (el-hi) markets and the Higher Education, Professional and International (HPI) Group serving the college, professional, international, and adult education markets.

The Education segment reported an operating loss of $65 million during the last reported quarter, reflecting an improvement of 13% over an operating loss of $75 million delivered in the prior-year quarter.

Going forward, McGraw-Hill Education will now focus on education services and digital learning and will speed up growth strategies while supplementing its growth through digital services and buyouts.

Citing a business model shift, McGraw-Hill slashed 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 as well as digital products and solutions.

Currently, we have a long-term 'Neutral' rating on McGraw-Hill, which competes with Pearson plc (PSO).

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