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Reed sells Harcourt to Riverdeep

17.07.07 Philip Jones

Reed Elsevier is to sell its Harcourt US Schools Education business to the Riverdeep Group, the Irish company that last year bought Houghton Mifflin for $3.4bn. The sum paid is $4bn. The deal further increases Riverdeep's hold over the US education markets, but will also push up the group's debt levels.

Riverdeep said that the combination of Houghton Mifflin's and Harcourt's elementary, secondary and supplemental businesses would create a provider that would offer customers more choices in educational publishing. The combined business will be led by Tony Lucki, chairman, president and c.e.o. of Houghton Mifflin, and former c.e.o. of Harcourt Education and Harcourt, Inc. The Harcourt Education division reported 2006 total revenues of $1,637m.

The deal will be financed by new borrowings. Riverdeep said that Credit Suisse, Lehman Brothers and Citi had committed to provide the debt financing for the transaction. In addition, existing investors, including J & E Davy, have committed to provide $235m of new equity financing to support the transaction. Upon completion of the transaction, Reed Elsevier will be approximately an 11.8% shareholder in the parent company of Houghton Mifflin.

The FT reports that nervous credit markets prompted some banks to walk away from providing debt for the Harcourt deal and were the reason Reed took an equity stake to get the deal done.

Riverdeep c.e.o Barry O'Callaghan said: "The addition of the Harcourt businesses to Houghton Mifflin will strengthen our position in the highly competitive educational publishing business. Together, Houghton Mifflin and Harcourt will provide a more customized, diverse and innovative range of products to meet the changing needs of educators and students. We will be able to develop and bring new products to market more quickly than would have been possible for either of us on a standalone basis. The combination will broaden and deepen the geographic reach of our combined sales force and enable us to develop the most innovative, updated and customer-focused technology and educational programs and products to meet the evolving needs of customers, educators and students throughout the country."

The sale of the US Schools Education businesses is expected to complete by the first half of 2008 following US regulatory review. The OFT is currently investigating Pearson's purchase of Harcourt's UK businesses. Reed said that on completion of these deals it will have sold the whole of its Harcourt Education division for total gross proceeds of $4.95bn, representing 20.8x 2006 adjusted operating profit.

Crispin Davis, c.e.o. of Reed Elsevier, said: "We are pleased to announce the sale of the Harcourt US Schools business at a price that recognises the exceptional quality of the Harcourt assets and of its management and staff."

US Todays Picks Philip Jones reed elsevier Riverdeep Houghton Mifflin Harcourt

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