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McGraw-Hill Takes New Shape

Zacks Equity Research

The McGraw-Hill Companies Inc. (MHP) recently completed the earlier announced divestiture of its education division to the Apollo Global Management LLC (APO) for $2.4 billion cash.

The move is a strategic attempt on McGraw-Hill’s behalf to restructure its portfolio of businesses and concentrate more on high growth operations, thereby enhancing shareholder value through proper capital allocation.

Alongside, the company’s education division has been confronting shrinking revenues due to reduced spending on textbooks by the government. Further, McGraw-Hill was facing execution risk associated with its plans to develop its education division into a subscription-based model through digital delivery.

McGraw-Hill will now be known as McGraw Hill Financial, following approval from shareholders. The company will primarily focus on capital and commodities markets and include iconic brands like S&P Ratings, S&P Capital IQ, S&P Dow Jones Indices and Platts.

To supplement its financial division, McGraw-Hill has made several strategic investments in its core businesses. 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.

Moving ahead, the company expects to utilize the proceeds from sales (approximately $1.9 billion net of tax) to buyback shares, reduce short-term debt obligations and make strategic acquisitions.

Moreover, McGraw-Hill expects revenues to increase in the high single-digit, while adjusted earnings are forecasted to be in the range of $3.10 to $3.20 per share for 2013, up 15% year over year. 

Currently, 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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