Walking In The HMH Shadow

After Barry O'Callaghan swallowed up a string of mighty behemoth publishers and promptly choked to death, the scraps of an educational publisher that remained went into a period of debt restructuring, sackings and reorganizing that led to bankruptcy court.

That was in 2012. A bit less than two years on, and Houghton Mifflin Harcourt emerged from bankruptcy as a slimmed- down version of its former self, under new management and with fewer employess. But it survived, to the relief of those fortunate enough to hang on to their jobs.

Publisher see, publisher do

Back when Barry O'Callaghan was an acquisition machine, Thomson Learning decided to follow in his footsteps, under the assumption that he was getting too far ahead and would leave the educational publisher in his wake. So they bought Houghton Mifflin's college division when Mr. O'Callaghan didn't need it anymore, and they picked up a few other bits and pieces to cobble together something that was big like the O'Callaghan creature that he named EMPG.

And like the wreck that was Education and Media Publishing Group, Cengage found that it was drowning in an ocean of debt, an ocean of its own creation.

The corporate suits walked in O'Callaghan's shadow and ended up in deep financial trouble. They're still trodding the same path. Cengage has just announced that it, too, is going to undergo the rigours of a Chapter 11 bankruptcy proceeding to restructure their debt. Their creditors will become their owners, just like HMH.

And in time, they hope their situation will mirror that of HMH, which came out of the process still breathing. Cengage will reduce its debt load by turning the debt into shares, but in a way, those owed the money essentially owned the failing publisher. For the debt holders, the arrangement gives them some slight chance of getting back more of their investment than they might otherwise have gained in a sale of assets.

That's how it worked for HMH debt holders, at any rate. So if you're following along in HMH's shadow, why not finish the journey and hope for the same success?

That success will depend on the folks in the corner offices making the right decisions, which is what happened in Boston at HMH headquarters. A misstep, and Cengage won't emerge from Chapter 11 with a pulse.