Harcourt General Inc. Agrees To Terms of Sale

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The acquisition of Harcourt General Inc. by European and Canadian media companies is raising concerns from some observers about the impact of the deal on school textbook prices and quality.

Harcourt, based in Newton, Mass., announced Oct. 27 that it had accepted an offer to be acquired by Reed Elsevier PLC, a British-Dutch information and publishing company, for $4.45 billion in cash and $1.2 billion in assumption of debt. Reed Elsevier will keep Harcourt's K-12 educational publishing units and its medical, scientific, and technical publishing businesses, but will sell Harcourt's higher education publishing and some other business units to the Toronto-based Thomson Corp. for $1.2 billion.

Harcourt, which owns such well- known educational properties as Holt, Rinehart and Winston textbooks and the Stanford Achievement Test, put itself up for sale last summer because of its sagging stock price. ("Harcourt General Looking for a Buyer," July 12, 2000.)

U.S. K-12 Educational Publishing Sales

Harcourt General Inc. ranked No. 4 in 1999 sales of K-12 instructional materials in the United States, according to data gathered by Educational Marketer, an industry newsletter. The figures below include revenues from textbooks, software, tests, and supplemental materials, such as workbooks and classroom magazines. They do not include sales of higher education materials or sales of instructional materials outside the United States.

Company 1999 Sales Market Share
Pearson $946.4 million 20.7%
McGraw-Hill 913.0 million 19.9%
Houghton Mifflin $657.3 million 14.4%
Harcourt $581.5 million 12.7%
WRC Media $214.1 million 4.7%
SOURCE: Simba Information Inc. Copyright 2000. Reprinted with permission.

The joint bid by media rivals Reed Elsevier and Thomson beat out a consortium of U.S. financial firms. Other publishers, including U.S. educational and business publisher McGraw-Hill Cos., unsuccessfully bid for only small pieces of Harcourt.

The deal is the second major foreign acquisition of U.S. educational publishing interests in recent years. In 1998, London-based Pearson PLC acquired Simon & Schuster for $4.6 billion. That deal included several educational publishing imprints, such as Prentice Hall, Addison Wesley Longman, and Allyn & Bacon.

Some experts on the textbook industry say they are worried about the growing consolidation of educational publishing among a few global media companies.

"As fewer and fewer companies compete in the mass market, there are fewer choices for states, school boards, and educators," said Gilbert T. Sewall, the director of the American Textbook Council, a New York City organization that tracks educational publishing.

"Because of the changes in the market, more and more textbooks resemble one another," he added. "They lose any sense of individual voice or personality."

Meanwhile, a group representing research libraries said last week it would ask the U.S. Department of Justice to block the deal on antitrust grounds. The Washington-based Association of Research Libraries expressed fears that the prices of scholarly journals, as well as textbooks, would increase significantly under Reed Elsevier's ownership.

'Strong Growth Dynamic'

Reed Elsevier is a publishing and information company that owns hundreds of properties, including science and medical journals, the Lexis-Nexis legal and news database, Shepard's and Matthew Bender legal publishers, and Cahners Business Information, a trade journal publisher.

The company was formed with the 1993 merger of Reed Publishing, a British company with roots as a newsprint supplier, and Elsevier, a Dutch publishing company founded in the 1880s.

Crispin Davis, the company's chief executive officer, said in a statement that the acquisition of Harcourt's scientific, technical, and medical properties and its elementary- and secondary-publishing units were a strategic fit for Reed Elsevier.

"The acquisition of Harcourt transforms our position in education [publishing]," he said. "The education market has a strong growth dynamic."

Harcourt's K-12 publishing sales rank fourth in the United States, behind Pearson, McGraw-Hill, and Houghton-Mifflin Inc.

Among Harcourt's K-12 properties, Reed Elsevier is keeping Harcourt School Publishers, an elementary- textbook unit with 1999 revenues of $283 million; Holt, Rinehart, and Winston, a secondary school publisher with revenues of $175 million last year; and Steck- Vaughn, a publisher of supplemental materials with 1999 revenues of $85 million.

The company will also keep Harcourt's testing business, which includes Harcourt Educational Measurement, the publisher of the Stanford and Metropolitan achievement tests, and Psychological Corp., which publishes intelligence tests and other instruments for use by trained psychologists. The testing unit's total revenues last year were $193 million.

Reed Elsevier said in a news release that the merger would establish it as a leader in educational publishing throughout the English-speaking world. A "global head of education" will be appointed, but for now, the company's U.S. educational publishing business will continue to be led by Anthony Lucki, the chief executive of Harcourt Education.

The deal values Harcourt at $59 a share, less than the $65 to $67 a share the publisher had hoped to get for putting itself up for sale. The price of Harcourt's shares closed at $55.74 on Nov. 1.

Vol. 20, Issue 10, Page 13

Published in Print: November 8, 2000, as Harcourt General Inc. Agrees To Terms of Sale
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