Credit Suisse, Lehman Brothers and Citigroup sought to cook up a tasty deal for HM Riverdeep, but no one is ordering the fish. The item has been pulled off the financial menu.
Encountering some difficulties in selling $7.15 billion in bonds to finance the minnow's insatiable hunger, the banks have suggested. Riverdeep scarfed down Houghton Mifflin and then tackled Reed Elsevier's Harcourt Education unit, but someone has to foot the bill and bond traders have turned up their noses at the banker's offer.
Like the Chicago Cubs, it will be "wait until next year". There's not enough credit to go around these days, especially for deals that have questionable returns. Moody's rated the bonds as B3 with a negative outlook, which is not the sort of rating that would see nervous buyers put up their scarce cash. It's the uncertainty that is hurting the deal, questions as to whether or not Mr. O'Callaghan can achieve the returns he claimed. Will the cash flow be where it needs to be? Will all those mysterious cost-cutting "synergies" be realized? Well, not right before Christmas, at any rate. Too cruel to sack people en masse, er, I mean, realize synergies, during the holiday season.
As far as HM Riverdeep is concerned, the acquisition of Harcourt is going forward, pending a nod from the Department of Justice. With McGraw Hill and Pearson to serve as competitors, there should be enough evidence that the deal would not create a monopoly among educational materials publishers.
Davy Stockbrokers will hit on their clients for $235 million and Reed Elsevier has already agreed to kick into the kitty for the sake of unloading Harcourt. The bankers will be counting on an upswing in the bond markets so that they can sell off the oppressive weight of the minnow's tab. They were burned badly by the mortgage foreclosure fiasco, and they'd rather not take another hit with another round of defaults.
23 comments:
The DOJ just approved the deal. Not sure what that means other than what I'm sure will be more budget cuts and job layoffs since the financing isn't syndicated yet. But we here at Harcourt have been living with doubt since July. We're just glad that some decision has been made so we can get on with our lives.
Living with doubt can be more stressful than dealing with the bad news when it hits.
How many are making for the exits before they're shown the door?
It's sad, because a lot of very talented people have already left. Everyone is still in kindof a shock since the announcement, so no one is actually leaving yet. I wonder what's happening at Houghton now.
I'd heard that some of the higher-ups at HM left in advance, but I don't know how many staff members have been cut.
Those who survive at Harcourt may find the atmosphere much improved under Barry O'Callaghan as compared to Reed Elsevier. It's the part between now and then that will be very difficult.
Oh, trust me, we're not crying any tears that Reed has "disposed" of us and are quite thrilled that HM Riverdeep is here. The future could really be outstanding. This merger could be the kick in the pants this industry needs. Our first concern is our ability to teach, and we believe that we will now be given a much better opportunity to use these skills.
Being owned by a man who's determined to build the biggest educational materials publisher is the silver lining.
The dark cloud is what it will take to get there.
I'm hoping that the proceess is as painless as possible for the employees.
Well, we'll just keep smiling. Hopefully the dark clouds will be small.
Here's to sunny days!
Anonymous 2 here...
Yes, a lot of very talented people have already left Houghton, too. Some left before or shortly after the purchase by Riverdeep, but a significant contingent left in the first part of 2007, in the months leading up to the announcement about Harcourt. There's been a hiring freeze since so they haven't all been replaced. Hope there's some talent to spare and share left at Harcourt!
Nothing like voluntary redundancies to cut the work force.
Will the open slots be filled by immigrants from Harcourt, or will you be expected to do the work of two...or three....got to cut costs and realize some synergies.
Still lots of talent left at Harcourt. We underwent a hiring and budget freeze for the past 6 months as well. Immigrants from Harcourt? Not sure about that. We haven't been told much about the future, but I can't imagine that it makes much business sense to relocate people from Orlando to Boston or visa versa. We, as well as Houghton, already work in a global environment, so I don't think the location is a problem. The infusion of the companies will surely be a cool thing to watch.
Sure there's a few up in Boston who are looking at a possible move to sunny Orlando.
Maybe an assignment to corporate headquarters in the Caymans? Even a shell company needs someone to dust and polish and bring in the mail.
Nice to see a buyout in which the buyer is not an investment firm or hedge fund looking to make quick profits. Better days ahead, now that the deal's done and the firms can be melded into a unit.
And again, let me please reiterate... No one here is crying that we're being disposed from Reed!!!! :)
Unbridled joy at being released from Reed Elsevier....450 kegs stolen from the Guinness Brewery...
It's all coming together. The party's on at Harcourt!
Another Harcourt employee here...
I think I speak for all of us at Harcourt when I say that we are keeping our fingers crossed that HM is a proactive, innovative, forward-thinking company. The educational publishing industry is behind the times and we need to catch up quickly. I hope together we can find some sustainable competitive advantages in an industry that needs a firm shaking. If not, look for new competition on the rise and not just within the education industry.
Tony Lucki...show us what you got!
Reed Elsevier did nothing but exactly what they planned from the very beginning. They were never out to nurture and establish Harcourt as a top notch publishing company. There entire goal was to cut as much funding as possible out of daily operations and flip our company for a profit--in which they succeeded. It's sad, because many Harcourt employees truly care about the company. Obviously Reed cared about the money. Smart? Guess it depends how big your bonus check is from the sale.
Reed Elsevier's owners were not interested in publishing, as they were a hedge fund which makes money. On the other hand, Riverdeep is an educational publishing company that makes what Harcourt Education makes, but in electronic form.
Barry O'Callaghan has a brilliant idea, to wed paper and computer products in one house. That alone would change the atmosphere at HM and Harcourt, with an owner who wants the employees to do better what they already do well.
It's a different sort of merger in this day of hedge funds and equity firms looking to flip companies and who cares if the employees get tumbled.
The issue now is the cost, because this has become a very expensive proposition. If all those Irish grannies in Cork praying for their boy have any clout, everything will be golden in the end.
And now a new twist to this already twisted deal. Houghton just sold off it's college division to Thomson. Apparently so they can focus more on the K-12 market. Personally, I'm glad. I'm at Harcourt in the K-6 market. And I'm glad to see that the leadership of HM Riverdeep understands that the K-12 market cannot function the same as the college market. What we need here is more focus. To reiterate another Harcourt (or should I say HRH, HMRH, HHMR?)... Toni, show us what you got?
p.s.... Welcome back Mr. Lucki
You'd expect the K-12 market to be more lucrative than the college level, especially with the trend to professors self-publishing their golden words and then selling them to the students at vanity press prices.
Tony Lucki has the experience and the drive, but does he have the financials to back him?
I find it interesting O'Callaghan is being viewed as a savior to publishing. from what i've read, he's flipped one deal after another and made a pretty penny in the process. it seems to me he is working similiar to private equity and must have plans on taking HMR public. looking on the outside, i have no idea how the numbers are going to work out.
He's a bit different in that he's coming from publishing, albeit by way of Credit Suisse. He's put Tony Lucki in charge, and there's a man with plenty of publishing experience.
Make no mistake, Mr. O'Callaghan is in it for the money, but he talks as if he he'd like to turn HM Riverdeep into a publishing force to be reckoned with.
With a stake of over 40%, he's got a vested interest in making this work, or there'll be no takers on a public offering.
Well... today was the day. The start of a new company... Houghton Mifflin Harcourt School Publishers. After a 2 1/2 hour company wide meeting, so much has happened. Some remained the same. Others have moved up in the world. And still others are leaving us. Shocking results, actually, but Tony's a good leader and we're sure he's on the right path. Somber moments throughout the day, saying goodbye to some and congratulating others. Very weird. I, personally, have not moved either direction. Just wondering what the word up at Houghton is...
No surprise that some are leaving, prefering to start elsewhere rather than be demoted or sacked later.
Don't spare the liquor as you say farewell. It's part of Irish tradition, to have a wake when someone's going away because there was a time when you'd never see them again.
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