McGraw-Hill to Split Into Two Listed Companies

Tuesday, September 13, 2011

The breakup of the mini-conglomerate follows public demands starting in July from the Ontario Teacher's Pension Fund and hedge fund Jana Partners LLC for a broad reorganization. The activists suggested breaking up the company into more than two pieces to highlight the value of its individual equities, commodities and financial analytics units.

"It's a first step," said Pat English, chief executive of Fiduciary Management Inc, a large holder of McGraw-Hill shares, who argues for a more radical plan.

"It doesn't make sense to have S&P Credit Ratings, S&P Indices, Capital IQ, Platts and other information companies under one roof," English wrote in an e-mail.

Investors boosted McGraw-Hill's shares 1.1 percent in afternoon trading to $39.15 a share after it also said it will accelerate plans to complete $1 billion of share buybacks this year. The company has repurchased $541 million so far this year.

The stock, however, still trades far below the sum-of-the-parts estimates of more than $50 a share that several analysts forecast in July.

"We intend to review the scope and impact of these steps," Jana and the Canadian pension fund said in a joint statement that noted they have identified additional ways "to unlock shareholder value." Monday's announcement is a start to "reversing years of underperformance," they wrote.

Terry McGraw, the 63-year-old chairman and chief executive of the company founded by his great-grandfather, said he will lead the bigger and more profitable part of the reorganized company that will include the S&P credit rating, market index and Capital IQ corporate and markets analytics businesses.

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