Entertainment Giant To Sell Textbook Division
By Kathleen Kennedy Manzo
One of the nation's largest educational publishers is up for sale, signaling what some observers believe is the final round in the trend toward consolidation that has ruled the industry for the past decade.
The announcement that New York City-based Viacom Inc., a giant media/entertainment company whose holdings include the country's biggest book publisher, will sell Simon & Schuster's educational, professional, and reference divisions, has fueled speculation over how it might change the dynamics of textbook publishing's upper echelon.
At the same time that Simon & Schuster officials are searching for buyers, they are investigating reports that competitors may be trying to use news of the sale to lure current and potential clients away.
Viacom officials made the announcement of their intentions to sell off some properties last month, citing the company's desire to focus on its core entertainment business. The sale would include the K-12 division, which includes Prentice Hall and Silver Burdett Ginn; the educational technology group; and international divisions. The operations have combined annual sales of about $2 billion.
"These operations have been overshadowed within Viacom and undervalued by the marketplace, particularly when compared with higher valuations being attributed to their publicly held competitors," Sumner N. Redstone, Viacom's chairman and chief executive officer, said in a statement.
Simon & Schuster posted record sales last year, according to Andrew Giangola, a company spokesman. It was a leader in sales in New York City after education officials there pumped millions of extra dollars into textbooks for core subjects.
In the right hands, Simon & Schuster could be an even bigger player in the industry, said Peter P. Appert, an industry analyst for BT Alex.Brown Research in San Francisco. As an entity of Viacom, which is primarily focused on entertainment, the educational division may not have received the management attention it needed to win a greater share of the market, Mr. Appert said.
"They arguably were suffering from underperformance due in part to the fact that it was not a core business focus for Viacom," said Mr. Appert, the author of the report "Making the Grade: Educational Publishing in the 1990s," published last fall. "Frankly, [the education division] will be better off as part of a different organization."
Textbook publishing has been booming in recent years, industry analysts say. Many of the top publishers saw record sales last year, when revenues were up more than 12 percent. Active state textbook-adoption schedules, an increase in the school-age population, and a push to replace aging books should fuel the trend for several years, Mr. Appert said.
In the past decade, many of the independent houses were swallowed up by a handful of publishers. In many cases, the consolidations have strengthened the industry because larger companies have the resources to pay for the high cost of creating and marketing new texts, Mr. Appert said. But he predicts that the trend toward consolidation is winding down.
Although Viacom officials say they hope to sell the Simon & Schuster divisions as a block, some observers say it may be difficult to find a single buyer. It is unlikely that one of the other top educational publishers would want the whole package, said Rick Blake, the vice president for the school division of the Association of American Publishers in New York City. Other publishers would likely consider purchasing just one part of the company, he said, such as its K-12 division. Only a foreign buyer or a corporation looking to break into educational publishing would conceivably buy Simon & Schuster outright, Mr. Blake said.
In any case, the sale could take months to materialize, said Mr. Giangola of Simon & Schuster. In the meantime, the company is continuing to market and deliver orders of new textbooks that have been in development over the past couple of years.
Mr. Giangola said he has received reports from school officials that some competitors are spreading rumors that his company will not be able to deliver its orders on time. He declined to identify the states and districts that purportedly have been approached other than to cite Texas among them.
At least one competitor has denied spreading misinformation. Paul L. McFall, a vice president for sales for Scott Foresman-Addison Wesley in Menlo Park, Calif., said that in an era when so many companies are experiencing major changes in ownership, to spread such rumors would be foolish.
"History shows us that, in every instance, when these companies are acquired, the customers have never suffered," Mr. McFall said.
In an environment with such intense rivalry, however, competitors are likely to take advantage of the uncertainty, Mr. Appert, the industry analyst, said.
"Are other sales representatives bringing that to the attention of decisionmakers? They would have to be nuts if they don't. But that doesn't mean they should be spreading false information," Mr. Appert said. "But I don't think the sale is going to dramatically change the dynamics of the business, because Simon & Schuster is a very large and important player.
"It will become a bigger player if they have a different strategy."