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Published in Print: July 12, 2000, as Harcourt General Looking for a Buyer

Harcourt General Looking for a Buyer

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Harcourt General Inc., one of the nation's largest educational publishers, surprised observers recently with the news that it was putting itself up for sale.

Among the Newton, Mass.-based company's properties are names known throughout precollegiate education, such as Holt, Rinehart and Winston textbooks, Steck- Vaughn workbooks, and the Stanford Achievement Test.

Despite the publisher's profitability and consistent revenue growth, its stock price has been depressed. That began to change last month when Harcourt announced that it was exploring strategic alternatives "to enhance shareholder value." The stock, which had been trading on the New York Stock Exchange as low as $32.625 in the last year, immediately jumped about 31 percent, to $54.8125, on June 19, the date of the announcement.

"Harcourt General's value in the public market does not presently reflect the quality of its businesses, record results, and bright prospects," Chairman Richard A. Smith said in a statement last month. "By initiating this process now, we believe we can significantly accelerate the recognition of those values for our shareholders."

Harcourt said it would have nothing else to say publicly while the investment bank Goldman, Sachs & Co. explored alternatives.

Harcourt's for-sale sign is not the only development to shake up educational publishing this summer. Late last month, the McGraw-Hill Cos., one of Harcourt's top competitors, announced it would acquire Tribune Education, a unit of the Tribune Co., the Chicago-based media conglomerate.

And Pearson PLC, the London-based news and educational publisher, purchased FamilyEducation Network Inc., which operates several World Wide Web sites aimed at educators and parents.

Poised for Growth

Harcourt has confirmed it is looking for a buyer for the whole company, with a target price range around $5 billion, rather than selling off bits and pieces of itself.

In its 1999 fiscal year, the publisher had revenues of $2.14 billion and earnings of $535 million. Based on its recent stock price, Harcourt has a market capitalization of more than $4 billion.

Harcourt General took shape in 1991 when Mr. Smith's family company, General Cinema Corp., bought the educational publisher known then as Harcourt Brace Jovanovich Inc. The new company adopted the Harcourt name and spun off General Cinema's line of movie theaters as a separate company.

Harcourt traces its educational offerings back to 1919, when Alfred Harcourt and Donald C. Brace, two former classmates at Columbia University, started their own publishing house in New York City. The company, known for many years as Harcourt, Brace and Co., entered the textbook market in the 1920s.

Meanwhile, its trade, or consumer, imprints published such noted writers as T.S. Eliot, Sinclair Lewis, and Flannery O'Connor. By 1960, the publishing house became publicly traded on the stock market and merged with the World Book Co., a Yonkers, N.Y., publisher of educational tests, including the Stanford Achievement Test.

Harcourt now ranks fourth among U.S. K-12 educational publishers, both in American and worldwide sales, according to a 1999 report by Simba Information Inc., a Stamford, Conn., research firm that tracks educational publishing. The top three publishers in both categories were Pearson, McGraw-Hill, and Houghton-Mifflin Co., according to Simba.

Harcourt's educational testing unit, Harcourt Educational Measurement, ranked second in sales behind McGraw-Hill's CTB/McGraw-Hill testing unit for 1998, the most recent year covered in the Simba report.

Gail Kalinoski, the managing editor of Educational Marketer, a Simba-published newsletter, said Harcourt is on track to move up a notch or two in sales by K-12 textbook publishers.

"They've been doing well," she said. "It seems like they've grown the company nicely and made good acquisitions, but nothing has made a difference with the stock price."

Since last year, Harcourt has moved to position itself as a force in education over the Internet. For example, the company hired former Massachusetts Commissioner of Education Robert Antonucci in 1998 to develop Harcourt University, which offers online courses taught by a stable of university professors. Meanwhile, Harcourt's main World Wide Web site, www.harcourt.com., has been retooled to offer everything from educational CD-ROMs to education tips for parents and students.

Other Deals

Meanwhile, McGraw-Hill's $634.7 million purchase of Tribune Education on June 26 bolsters the New York City-based publisher's educational lineup in several areas, analysts said.

Tribune's educational properties included the Wright Group, NTC/Contemporary Publishing, and Everyday Learning/Creative Publications, all publishers of supplemental educational materials. Also included in the sale was Landoll Inc., a children's trade publisher that holds the license to Winnie the Pooh.

"This is a good deal for McGraw-Hill," Ms. Kalinoski of Educational Marketer said. "This puts them at the top for supplementals."

The Tribune Co., which owns the Chicago Tribune and other newspapers as well as extensive broadcasting interests, had quietly built its education unit throughout the 1990s. By 1998, it had become the largest U.S. publisher of supplemental materials, such as workbooks.

But earlier this year, Tribune embarked on an $8 billion purchase of the Los Angeles-based media giant Times Mirror Co. With the completion of that merger, Tribune has decided to get out of the education publishing business.

"The sale of the education businesses enables us to concentrate financial resources and management talent on our aggressive media growth strategy," John W. Madigan, Tribune's chairman and chief executive officer, said in a statement.

Meanwhile, Pearson's $129 million purchase of FamilyEducation Network on June 29 was joined by announcements that the company will make a minority investment in Classroom Connect, a developer of Web-based curriculum products for educators, and will supply educational content to Internet service provider America Online Inc.

Vol. 19, Issue 42, Page 8

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