Houghton Mifflin Acquisition Extends Industry Trend
Mark Twain, meet Eminem and the Mummy.
Houghton Mifflin Co., one of the nation's oldest independent trade and educational book publishers whose authors have included Twain and Nathaniel Hawthorne, is being acquired by Vivendi Universal SA, a French media conglomerate with major interests in movies, publishing, video games, and music. Among its properties are the hit film "The Mummy Returns" and a recording contract with the controversial rapper.
Vivendi is to purchase Boston-based Houghton Mifflin in a $2.2 billion deal that will give the French company a major foothold in U.S. publishing. The Paris-based company was formed last year by a merger between a French company with roots as a water utility and the Seagram Co., the American owner of such assets as Universal Studios and Universal Music Group.
"We have decided to target selectively some key 'edutainment' fields," Jean-Marie Messier, Vivendi Universal's chairman and chief executive officer, said at a June 1 press conference to announce the deal. "The acquisition of Houghton Mifflin is a very substantial" part of that strategy, he added.
The accord is the latest in a wave of acquisitions of U.S. educational publishers by global-media powerhouses. With Houghton Mifflin in its stable, Vivendi would be second only to Britain's Pearson PLC in educational publishing sales throughout the world. In the past three years, Pearson has acquired several major U.S. K-12 and college textbook and testing assets. ("Pearson Hopes To 'Widen the Definition of Education,'" Feb. 21, 2001.)
Harcourt General Inc., another venerable U.S. educational publisher, announced last October that its K-12 properties would be acquired by Anglo-Dutch publisher Reed-Elsevier PLC. Its college assets would go to the Canadian-based Thomson Corp. That deal has yet to be completed because of antitrust scrutiny in Europe.
The Vivendi compact would leave the New York City-based McGraw-Hill Cos. as the last major educational publisher still domestically owned.
"For really the last decade, this is a business that has been going through major consolidation," said Peter P. Appert, an analyst who tracks educational publishing for the investment bank Deutsche Bank Alex. Brown.
Last week in New York City, the investment bank held its annual conference on media stocks, including a segment largely devoted to educational publishing. All the major publishers except Harcourt made presentations, with the Houghton Mifflin buyout being Topic A.
"It's a new beginning, a new chapter for our company," Nader F. Darehshori, the chairman, president, and CEO of Houghton Mifflin, said to investment analysts at the conference.
Selling to Vivendi will allow the nation's fourth-largest educational publisher to grow globally while retaining its name and its presence in Boston, he said. Vivendi executives earlier said there would be no job losses at Houghton Mifflin and that the company would become its U.S. publishing base.
"They were the only [potential buyer] that would leave us to operate as we have been," Mr. Darehshori added.
Mr. Darehshori, upon questioning, said it wasn't likely that American educators would have concerns about buying textbooks from a French-owned company or that the deal might negatively affect sales. When London-based Pearson took over major U.S. educational publishing holdings a few years ago, "our sales people tried to make a big issue out of that," he noted. "It didn't work."
Houghton Mifflin traces its roots to 1832, when Boston was the center of U.S. book publishing. Houghton or its predecessors published not only Hawthorne and Twain, but also Ralph Waldo Emerson, Henry David Thoreau, and Harriet Beecher Stowe, among other literary greats.
Although it already published textbooks, the company established its first educational division in 1882. It later entered the field of test publishing, with the Stanford-Binet intelligence scale in 1916 and the Iowa Tests of Basic Skills in 1940.
While Houghton Mifflin has led the field in sales of specific subjects of textbooks, it has remained fourth in overall K-12 revenues behind Pearson, McGraw-Hill, and Harcourt, according to Mr. Appert. As its U.S. competitors grew stronger by joining forces with global behemoths, Houghton Mifflin has been viewed as a takeover target for some time by Wall Street analysts familiar with the education publishing industry.
Mr. Darehshori, who has Nathaniel Hawthorne's desk in his office, said the sale to Vivendi made sense now because it was a good value for Houghton Mifflin's shareholders.
"These guys have their act together," he said of the Vivendi leadership.
From Vivendi's standpoint, some observers have questioned whether a U.S. educational publisher fits into its strategy to be a global leader in film, music, games, and Internet entertainment. But the company already has a publishing arm, Havas, that is strong in educational sales in France, Spain, and Brazil.
And Vivendi's Mr. Messier stressed that he believes there are important synergies between entertainment and education. He referred numerous times to "edutainment," business slang for educational content that can entertain and vice versa.
He also cited "The Mummy Returns," from his company's Universal Studios, which will lead to sales of videos and DVDs, a musical soundtrack, video games, and an attraction at the company's Universal theme parks.
"The only piece still missing for 'Mummy Returns' is the educational software based on the character," Mr. Messier said at the press conference.
End of Mergers?
Nevertheless, one educational publishing executive said he remained skeptical of the long-predicted convergence between entertainment and educational content.
"We've had 20 years of these movie execs exclaiming that 'edutainment' is the future," Peter Jovanovich, the chief executive of Pearson Education, the British company's school and college publishing arm, said at the Deutsche Bank meeting. "It's utter nonsense."
But Mr. Jovanovich, an American who runs Pearson's worldwide educational publishing unit from New Jersey, said the latest deal was logical for both Vivendi and Houghton Mifflin.
"I do think it makes sense," he said.
Several observers agreed that further mergers involving U.S. textbook publishers appear unlikely.
"The consolidation among big publishers is pretty well done," said Mr. Appert. Antitrust concerns would likely bar any of the four or five major remaining players from combining into still-larger companies.
"More consolidation is expected among smaller niche publishers," Mr. Appert added.
Mr. Jovanovich concurred, noting that "this market has reached the limits of its acquisitions." But in the educational technology arena, where overlap between the big publishers and many smaller players exists, mergers and acquisitions are more likely to continue, he added.
Vol. 20, Issue 40, Page 8Published in Print: June 13, 2001, as Houghton Mifflin Acquisition Extends Industry Trend