Today, a statement from The McGraw-Hill Companies, Inc. (NYSE:MHP) has announced that Apollo Global Management LLC (NYSE:APO) will purchase its education unit. The purchase price is $2.5 billion, and the company expects the transaction to close by the end of 2012 or in the first quarter of next year.
It’s been more than a year since The McGraw-Hill Companies, Inc. (NYSE:MHP) announced its plans for a split. The two businesses formed from McGraw-Hill were expected to be its education unit, which is a leading publisher of educational materials, and its financial unit, which includes Standard & Poor’s, the biggest credit-rating company in the world. McGraw-Hill will also keep its market indexes unit, which owns the S&P 500 and Dow Jones Industrial Average, and Platts, a widely read publication in the metals industry. After the split, the company’s new name will be McGraw Hill Financial.
Shrinking Textbook Sales
The McGraw-Hill Companies, Inc. (NYSE:MHP)’s education unit has seen shrinking sales in most of the last year years, because school corporations are cutting their textbook budgets. Apollo’s purchase comes as experts in the education industry look for ways to change how content is published.
According to analysts from Piper Jaffray & Co., Apollo Global Management LLC (NYSE:APO) will move the education unit to a subscription-based model so that revenues from it would be more predictable. Potentially the unit would also become more profitable because inventory and manufacturing costs would be eliminated.
McGraw-Hill Underperformance
Last year The McGraw-Hill Companies, Inc. (NYSE:MHP)’s education unit reported $2.3 billion in sales. In 2011 Jana Partners, a hedge fund investment firm, suggested that the company split because their analysts believed that McGraw-Hill’s education unit was dragging down the value of the company as a whole.
