The Hungry, Hungry Minnow

Hard to resist a good bargain, even after you've spent your last dime. Not satisfied with his acquisition of education materials publisher Houghton Mifflin, Barry O'Callaghan is salivating over big, juicy Harcourt Education. This tasty dish may be up for sale, with parent Reed Elsevier looking to unload its educational publishing group.

Mr. O'Callaghan has gone back to his financiers and is said to be asking around in search of new blood, in an attempt to scrape together 880 million euro, on top of his already bloated loan in excess of 3 billion euro. But Harcourt is just too delicious to pass up, no matter how full his debt belly may be.

Financially, it looks like a long stretch to pick up Reed Elsevier's offer, so soon after finishing up the Houghton Mifflin deal, but they are unloading Harcourt Education for the same reason as Houghton Mifflin went on the block. The world is going electronic, and Harcourt is a dusty old paper publisher. No wonder then that Mr. O'Callaghan sees it as a perfect fit, quite in line with the Houghton Mifflin acquisition.

All well and good, the potential synergies and increased ability to control the educational materials market (and thus the ability to charge a bit more for the product), but there is only so much debt that a bank will swallow before it pushes away from the table. Add to that the recent defection of Ernst & Young as auditors, due to some unpleasant "incorrect representations", and suddenly the dessert menu is not so appealing anymore.

This one may not go as smoothly as the Riverdeep buyout of Houghton Mifflin, if a deal can be done at all. The savvy investors are going to hang back and see if the monolithic HM Riverdeep can perform as advertised before they kick in for more. A new acquisition adds to the risk, and there is a limit to the chances that financiers are willing to take, given the potential return on investment.

It's up to Barry O'Callaghan to do some powerful convincing. Hasn't he been seen recently, up at that old castle? With his lips firmly pressed to the Blarney Stone?