McGraw-Hill sets plan to split into 2 companies

July 13, 2009: The McGraw-Hill Cos. offices in New York. McGraw-Hill Cos., which has been reviewing its businesses, will split up into two companies with one focused on education and the other on capital and commodities markets. (AP)

NEW YORK – McGraw-Hill Cos. will split up into two public companies with one focused on education and the other centered on markets, featuring the Standard & Poor's unit.

The decision, which has been expected, follows a yearlong review of the company's business. Investors have pushed the New York company to boost the company's stock price, which has dropped by more than 40 percent since 2006.

The company's S&P ratings agency has been under fire for its recent downgrade of U.S. debt, as well as several bad calls it made leading up to the financial crisis and economic meltdown that began in 2008. The unit's president stepped down last month.

McGraw-Hill said Monday it will also cut costs and accelerate share buybacks to a total of $1 billion for 2011. It has bought back about half that amount to date.

McGraw-Hill Education will be the new company focused on education services and digital learning, while McGraw-Hill Markets will retain S&P and J.D. Power and Associates, a market research company. It also includes S&P Capital IQ, a provider of data, research, benchmarks and analytics and Platts, a provider of information and indices in energy, petrochemicals and metals.

The markets business expects 2011 revenue of about $4 billion, with almost 40 percent of it from international markets. The education segment is forecasting revenue of about $2.4 billion for the year.

The company said the split will create more "sharply defined," focused companies that will make it easier for investors to assess their value.

William Bird, an analyst with Lazard Capital Markets, wrote in a note to investors Monday that McGraw-Hill's cost cuts, buybacks, and corporate split are "value-creation levers that are likely to enable above-average stock performance in an uncertain market."

Activist shareholders — the hedge fund Jana Partners and the Ontario Teachers' Pension Plan — have been pushing the company to spin off into four separate companies. Under this plan, the four businesses would have been the education division, the information and media division, which includes Platts and J.D. Power; the financial division, which includes Capital IQ and would include S&P's ratings division; and the index business that includes the S&P 500.

McGraw-Hill had disclosed a strategic review of its business in June, several weeks before Jana and the Ontario Teachers' Pension Plan Board increased their collective stake in McGraw-Hill to 5.2 percent.

Harold "Terry" McGraw, chairman, president and CEO of the company, will lead the Markets business. A search has begun for a leader of the education business, the company said. Its board has approved the split.

McGraw-Hill was founded by McGraw's great-grandfather, James H. McGraw in 1888 when he purchased the company's first publication, The American Journal of Railway Appliances. Since then, the company has provided technical and trade publications, as well as information and analysis on global markets.

Shares of McGraw-Hill rose $1.27, or 3.3 percent, to $39.99 in afternoon trading, after rising as high as $40.44 earlier in the session. The stock has traded in a 52-week range of $29.43 and $45.47.