Monday, July 16, 2007

The Minnow Considers The Dessert Menu

After spending every last penny on a substantial meal, the little minnow finds that no take-over is complete without a little sweet at the end. With that in mind, Barry O'Callaghan is said to be seriously considering a buy-out of Reed-Elsevier's educational unit. Harcourt Education would then become part of the HM Riverdeep school, lolling in the warm sun of the Cayman Islands.

One can see why Mr. O'Callaghan would be eager to acquire Harcourt Education. He went after Houghton Mifflin with an eye to creating the biggest educational publishing firm on the planet, and adding the assets of Harcourt would bring that dream closer to reality. Last April, Reed Elsevier's international education assets were acquired by Pearson, and various equity funds have been feasting on other educational publishing firms of late. There'll be no tasty tidbits left if Mr. O'Callaghan doesn't act fast.

Rumor has it that the deal could be announced very soon. The question is, how is the minnow that swallowed the whale going to pay for another acquisition that is valued at $4 billion? With Moody's rating on HM Riverdeep debt at less than comfortably safe, who will pony up more to fund the next purchase? Is this what the restructuring was all about, to free up cash reserves to cover an added expense? But where will that put the investors, who will be looking at added risk to a venture that is already risky?

The employees at Harcourt may even now be swimming for their financial lives.


Anonymous said...

So once this deal goes down, what can a Harcourt employee expect? Time to man the lifeboats?

O hAnnrachainn said...

It will be a tsunami of synergies.

Why maintain departments that duplicate each other? It happens every time there's a merger.

Nothing wrong with having the resume polished up and ready just in case. Or you might want to contact some of the people at Houghton Mifflin who are going through it now.

Anonymous said...

According to Angela Moore at

"Credit Suisse, Lehman Brothers and Citigroup have committed to provide the debt financing for the transaction. In addition, existing investors, including J & E Davy, have committed to provide $235 million of new equity financing to support the transaction."

This is the same cast of characters that financed the swallowing of the whale in late 2006. And given the size of the acquisition, this is looking like a whole dessert cart, rather than a sampling from the menu.

As to who is at greater risk, Harcourt or Houghton employees, I wouldn't assume for a second that one is in better shape than the other, in this situation. Too many variables!

O hAnnrachainn said...

Everyone is equally vulnerable, with the benefit of the doubt going to the Riverdeep employees. There's no way that this amalgamation will work without cutting jobs. And job cuts are no doubt part of the plan to reduce operating expenses.

I'm resisting the genetic urge to mumble: "Sure and it'll never work."