McGraw-Hill, challenged by activist hedge fund investor Jana Partners, said it will split into two companies focused on global markets and education.
The transaction should be completed by the end of 2012 through a tax-free spinoff of the education unit, the company said Monday in a statement. McGraw-Hill Markets will include Standard & Poor’s and be led by CEO Terry McGraw.
McGraw-Hill, under pressure following S&P ratings missteps that played a central role in the 2008 global financial crisis, as well as last month’s downgrade of U.S. sovereign debt, began a strategic review last year of the company’s businesses. Education revenue fell the past three quarters. Jana Partners said Aug. 1 that it met with company management to discuss corporate structure and plans.
As part of the split, McGraw-Hill will seek to cut corporate expenses and administrative and technology costs off a base of more than $1 billion, without specifying the extent of the reduction. The company is also searching for a CEO for McGraw-Hill Education, which expects to have revenue of about $2.4 billion this year.
McGraw-Hill Markets anticipates 2011 revenue of about $4 billion.
McGraw-Hill said earlier this year that it would sell its broadcasting group because of the unit’s limited growth prospects. It also said it will accelerate the pace of a share buyback plan to $1 billion for the year, with $540.6 million repurchased year to date.
Jana Partners, which manages about $3 billion, holds a 5.2% stake in McGraw-Hill, together with the C$107.5 billion (US$108 billion) Ontario Teachers’ Pension Plan, Toronto, according to a regulatory filing.
Goldman Sachs Group and Evercore Partners advised McGraw-Hill.