April 27, 2015 Last Updated 8:04 am

Scholastic sells Educational Technology business to Houghton Mifflin Harcourt for $575 million in cash

Scholastic says sale will enable it to focus on its core businesses by deepening relationships with its primary customers – teachers, parents, children, and schools.

NEW YORK, NY – April 24, 2015 — Scholastic Corporation announced that it has entered into a definitive agreement to sell its Educational Technology and Services business to Houghton Mifflin Harcourt Company for $575 million in cash. EdTech had $249 million in revenues and $40 million in operating income in the 2014 fiscal year ended May 31, 2014. Revenues were $175 million and operating income was $17 million for the first nine months of the current fiscal year ending May 31, 2015. Scholastic expects net proceeds from the sale, after taxes, transaction fees, and other expenses, of approximately $360 – $370 million.

The transaction will enable Scholastic to focus on its core businesses by deepening relationships with its primary customers – teachers, parents, children, and schools. The Company plans to re-invest the proceeds from the sale in its Children’s Book Publishing and Distribution, Classroom and Supplemental Materials Publishing, and International business segments, while continuing to return capital to shareholders over time.

The opportunities for growth in Scholastic’s core businesses include:

In Children’s Book Publishing and Distribution, which comprises book clubs, book fairs, trade publishing and media, the current focus on independent reading in schools, along with new marketing strategies in clubs, has reinvigorated the Company’s school distribution channels. School book clubs have delivered 33% revenue growth over the past four quarters and book fair revenue reached $490 million in the same period. Trade publishing continues to grow through sales to bookstores, etailers and the mass market, while also supporting the school channels.

The Classroom and Supplemental Materials Publishing business, which includes classroom book collections, Guided Reading, classroom magazines and other print and digital instructional programs, has been a profitable area for Scholastic for decades and is now one of its significant growth areas. Segment revenue has grown steadily over the last four quarters, reaching $246 million in total for that period.

International sales, which include subsidiaries in Canada, UK, Australia, New Zealand, and operations throughout Asia as well as exports to more than 150 countries, have been strong at $414 million over the past four quarters, with local currency sales growth in most areas.
Richard Robinson, Chairman, President and Chief Executive Officer, said, “Scholastic has built a global business around the guiding principle of promoting school-based reading and learning. This is an exciting time for our businesses with a renewed focus on books and reading in schools and at home. We now have a historic opportunity to further grow our Children’s Book Publishing and Distribution, Classroom and Supplemental Materials Publishing, and International businesses.”

Mr. Robinson continued, “The EdTech business has a substantially different model for product development, marketing and sales from Scholastic’s core school-based and consumer print and digital publishing businesses. EdTech also requires longer lead times for selling and larger investments in product development. Accordingly, we believe it is in the best interest of the Company and its shareholders to accept this offer for the EdTech business. Scholastic plans to maintain its balanced approach to capital allocation, redeploying the proceeds from this transaction into strategic investments to accelerate profitable sales growth in our core children’s books and educational publishing businesses in the US and around the world, while continuing to return capital to shareholders over time.”

The management team of the Educational Technology and Services business, including its President Margery Mayer, is expected to remain with the business as part of HMH. The business’ approximate 800 employees are also expected to join HMH upon transaction close.

Mr. Robinson concluded, “We are proud of the trail-blazing EdTech business we have built over the past two decades, with its focus on proven programs and services which boost student achievement in reading and math. We are confident that our solutions-based programs and our team will continue to thrive as part of HMH.”

The transaction is expected to close in the second calendar quarter of 2015, subject to regulatory approvals and customary closing conditions.

Greenhill & Co. acted as financial advisor to Scholastic on the transaction.

Source: Scholastic

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