McGraw-Hill breakup value could hit $70 per share

McGraw-Hill Cos., the textbook publisher and owner of Standard & Poor’s, may be worth $52 to $70 a share if the company were to break up, said analysts at Lazard Capital Markets and Piper Jaffray & Co.
Pressure from investors, including hedge fund Jana Partners LLC, which said last week it bought a stake in the company and held discussions with management about strategy, may spur McGraw-Hill to accelerate plans to spin off businesses.
“The activist activity is likely focused on creating value through a company breakup, cost cuts and increased financial leverage to enable buybacks,” William Bird, an analyst at Lazard in New York, said in a note last week. He pegged a breakup value of about $55 a share, which is 33 percent more than McGraw-Hill’s closing price Aug. 1, and said the value could climb to $70 with premium-asset sales and a reduced pool of outstanding shares.
McGraw-Hill Chief Executive Officer Terry McGraw said last month that the company was conducting a strategic portfolio review, a month after it said it planned to sell its broadcasting group. The education unit, McGraw-Hill’s largest, has lagged behind its financial businesses, including S&P, which posted a 19 percent jump in sales last quarter on increased demand for bond ratings.
A sale or spinoff of the education division may not be the likely outcome, said Peter Appert, an analyst at Piper Jaffray, in a July 29 report. He valued the unit at $3.33 billion and the information and media businesses, which include Platts and TV stations, at $2.22 billion.
“Given depressed current operating results and limited potential buyers, we think this may be a better asset to hold than trade,” he said. “Some of the smaller, less strategic components of the Info-Media segment might be logical candidates for divestiture.”
Units such as J.D. Power, Construction Information and Aviation Week brands could be sold, he said.
Appert put a $6.38 billion value on the S&P unit and $4.14 billion on the company’s investment-services division. As a whole, he said the company would be worth $52.38 a share. &#8226