The news that Riverdeep has purchased Reed Elsevier’s US educational publishing business Harcourt for $4bn (£2bn) seems to have astounded many pundits.
True, it does look like a case of a minnow swallowing a whale, but anyone who has watched Barry O’Callaghan and his team for any period would be in no doubt as to their international ambition and supreme self confidence. After digesting their $3.5bn reverse takeover of Houghton Mifflin and having their auditors resign, having to bed down a financially complex mega deal will be a Herculean task for Riverdeep.The management team will be led by Tony Lucki, CEO of Houghton Mifflin who also used to be CEO of Harcourt Education.
Perhaps the most interesting aspect of this whole story is that it still leaves Reed with a $300m investment in Houghton Mifflin Riverdeep, an education business, although our understanding was that Reed wanted out of education, hence their desire to sell off Harcourt.
Before the deal is completed there is likely to be a regulatory review by the US Justice Department as to whether this deal may have a negative impact on competition in the US textbook market, but Riverdeep’s advisors obviously don’t see this as a problem.
Credit Suisse, Citigroup and Lehman Brothers have advised Riverdeep and are thought to be providing debt financing for the deal. Irish stockbroker Davey are also providing $235m of new equity financing.
Oddly, the announcement of the deal comes soon after Houghton Mifflin Riverdeep asked shareholders to approve a plan to establish a new holding company in the Cayman Islands called Education Media and Publishing Group. The primary driver behind this move is what Barry O’Callaghan described as the Cayman’s ‘less onerous’ regulatory regime which would give more flexibility in making distributions to shareholders (O’Callaghan being the largest shareholder with 47%). Cayman Island companies also do not have to hold annual general meetings, have auditors or file audited accounts.
To get agreement for this scheme of arrangement, Houghton Mifflin Riverdeep would need 75% shareholder approval, something we understand was already locked in prior to the Extraordinary General Meeting that was held on July 9.
www.harcourt.com
www.hmco.com
