Could we be losing one of the most anticipated spins of the year? Might be, as McGraw-Hill (MHP) entered into exclusive negotiations with Apollo Global Management (APO) regarding the possible sale of its education unit. The company had been preparing itself for a spinoff, but was simultaneously running a bidding process for the unit. Final offers were submitted in October and Apollo, which has a strong background in the education space, emerged as the victor. According to the WSJ, the price tag is expected to be sub $2.5 billion, representing a significant discount to the $3-4 billion which MHP originally sought for the business. This is most likely due to the continued struggles at the unit which led to downward revisions in the forecasts. If the two sides fail to reach a deal, McGraw-Hill could turn to its other major bidder, Apax Partners (although I imagine that to be a weak negotiating position), or push forward with the spin.
News of a potential sale shouldn’t come as a surprise as many companies look for buyers while also preparing to spin off a unit. Keep in mind that most of the time, the goal is to separate the unit in order to deliver shareholder value. We may be biased here, but even we acknowledge there is more than one way to accomplish that task.
Disclosure: Author holds no position in any stock mentioned.