Reed Elsevier’s recently announced plans to spin off its Harcourt educational publishing divisions to the Houghton Mifflin Co. would complete a consolidation of most K-12 publishing in the United States into a new Big Three.
If federal regulators allow the deal to go through, school districts that annually buy textbooks from the three companies—Pearson Education Inc., the McGraw-Hill Cos., and Houghton Mifflin with its newly acquired Harcourt units—would likely see little change over the next few years, analysts of the educational publishing market agreed.
For the longer term, experts differ over whether the consolidation would speed—or slow—the ongoing transition to greater use of digital-based curriculum materials currently taking place in K-12 education.
Pearson Education is currently the industry leader in U.S. education publishing, experts said. Depending on how size is measured, the latest deal could vault Houghton Mifflin to the top of the K-12 portion of that market.
Under terms of the deal announced July 16, the 175-year-old Boston-based Houghton Mifflin would pay London-based Reed Elsevier Group plc $4 billion for Harcourt Education.
“The textbook-publishing industry has seen a great deal of mergers and acquisitions over the past eight to 10 years,” noted Jay Diskey, the executive director of the Washington-based school division of the Association of American Publishers, which counts all those companies, or subsidiaries of them, as members.
The Houghton Mifflin Co. and Harcourt Education encompass various divisions that do business in the precollegiate market and would be affected by Harcourt’s sale to Houghton Mifflin.
HOUGHTON MIFFLIN CO.
• Houghton Mifflin School Division
Products: Science, reading, language arts, mathematics, and social studies textbooks for pre- K-8, as well as an integrated pre-K curriculum. Programs for reading and math intervention, professional-development tools, and learning technologies.
• Great Source Education Group
Based: Wilmington, Mass.
Products: Curriculum-based supplemental resources for pre-K–12. Resources for reading, writing, math, science, and English learners; curriculum kits for summer school and after school; state-test preparation; and math courseware.
• McDougal Littell
Based: Evanston, Ill.
Products: Print and technology materials for grades 6-12, including textbook series for language arts, math, social studies, world languages, and science. Texts for high school Advanced Placement courses.
• Houghton Mifflin Learning Technology
Products: Curriculum-based technology products for pre-K-12, including Destination Math, Destination Reading, Earobics, Larson Learning, SkillsTutor, and Learning Village. Supplemental titles include the Edmark House Series, Reader Rabbit, Oregon Trail, Carmen Sandiego, and The Print Shop.
• Riverside Publishing
Products: K–12 assessments include the Iowa Tests of Basic Skills, criterion-referenced tests developed for states, the Gates-MacGinitie Reading Tests, the Diagnostic Assessments of Reading, and the Edusoft Assessment Management System.
• Harcourt School Publishers
Based: Orlando, Fla.
Products: Textbooks and related instructional materials for pre-K-6, particularly in science, reading, mathematics, and social studies, as well as supplemental and alternative basal materials under the Rigby, Saxon, and Steck-Vaughn imprints.
• Holt, Rinehart and Winston
Based: Austin, Texas
Products: Instructional materials for grades 6-12 in language arts, social studies, science, mathematics, and world languages, including curriculum-based textbooks, e-learning sites, CD-ROMs, and other support and reference materials.
Based: Westport, Conn., and Portsmouth, N.H.
Products: Library reference and online products as well as professional books and curriculum resource content for K-12 classrooms.
• Harcourt Connected Learning
Based: San Bernardino, Calif., and Brisbane, Calif.
Products: Web-based data reporting and analysis systems by Achieve Data Solutions, the developer of DataDirector, and the professional-development programs and online instructional materials for K-12 education offered by Classroom Connect/eSchool.
• Harcourt Trade Publishers
Based: San Diego
Products: Fiction and nonfiction books for adults and children.
SOURCES: Houghton Mifflin Co. and Harcourt Education
“This latest one, if it goes through, will in essence leave three very large companies doing 80 to 85 percent of the K-12 textbook sales,” Mr. Diskey said, adding that a number of smaller publishers round out the market.
The transaction is subject to regulatory review by the U.S. Department of Justice and the Federal Trade Commission. The companies hope the deal will be completed by early next year.
At least one analyst of the education marketplace said he believes the purchase of Harcourt Education raises serious antitrust concerns.
“We’ve got to look at the impact of the concentration of the industry on price, quality, and innovation,” said Marc Dean Millot, the editor of the Alexandria, Va.-based New Education Economy, an electronic newsletter for the education industry.
Houghton Mifflin itself was merged late last year with the privately held Dublin, Ireland-based software company Riverdeep PLC. Through that deal, the management of Riverdeep took the reins of the company now known as Houghton Mifflin Riverdeep Group PLC.
The Harcourt Education Cos. include Harcourt School Publishers; Holt, Rinehart and Winston; Greenwood-Heinemann; and Harcourt Trade Publishers. Reed Elsevier, an Anglo-Dutch media company with headquarters in London, acquired most of those businesses in 2001.
In May of this year, Reed Elsevier agreed to an offer of $950 million from Pearson to buy Harcourt Assessment, the company’s testing arm, and Harcourt Education International, which sells curriculum products outside the United States.
The newly announced Houghton Mifflin-Harcourt deal would also combine the literary riches of Houghton Mifflin, which has published such great American writers as Mark Twain and Henry David Thoreau, and the Orlando, Fla.-based Harcourt, which has boasted a range of authors over nearly nine decades, including Virginia Woolf, T.S. Eliot, and Umberto Eco.
“The combination will broaden and deepen the geographic reach of our combined sales force and enable us to develop the most innovative, updated, and customer-focused technology and educational programs and products to meet the evolving needs of our customers, educators, and students throughout the country,” Barry O’Callaghan, the principal shareholder of Houghton Mifflin, said in a statement.
Analysts at Bear Stearns International Ltd., an investment company in New York City, said the deal would give Houghton Mifflin’s parent company a 33 percent share of the K-12 publishing market, ahead of Pearson at 27 percent and McGraw-Hill at 22 percent.
The market-research firm Simba Information, based in Rockville, Md., concluded that a combined Houghton Mifflin and Harcourt would still trail Pearson in market share in K-12 textbook sales, though it would become the leading supplier of K-12 instructional materials overall, according to a report in The Boston Globe.
Adam J. Newman, the managing vice president of Boston-based Eduventures Inc., an education market-research firm, said the planned acquisition “certainly is a significant competitive challenge to McGraw-Hill and Pearson.” Pearson Education is based in Upper Saddle River, N.J., and McGraw-Hill’s headquarters are in New York City.
If the deal is completed, he added, “clearly from a pure revenue perspective, there’s a new leader in the K-12 space.”
It is unclear at this point what that change may mean for school districts and educators, several analysts said. Publishers tend to preserve textbook series and imprints that have a loyal following, for fear of losing sales if they eliminate them.
Yet they also seek efficiencies from merging or eliminating redundant products and overlapping personnel. Managing such issues effectively is one of the challenges of combining companies.
Transition From Texts?
One likely result of the deal, Eduventures’ Mr. Newman predicted, would be to help drive the resulting companies—and their competitors—further into publishing digital content.
“It suggests a further and continued move away from the textbook as a model for content delivery, given the thinking these [participating] businesses have done and their investments in alternatives to basals,” he said. “It accelerates the transition away from textbooks.”
Mr. Newman said the greater concentration of K-12 publishing revenues in three organizations paradoxically “could create some significant opportunities for some of what might be considered not-tier-one publishers.”
Customers sometimes react to a big merger by reassessing their product choices in the marketplace and may switch to a rival supplier, he said.
Smaller companies that already have established digital curriculum products—for example, Apex Learning Inc., Agile Mind Inc., Wireless Generation Inc., and PLATO Learning Inc.—could gather in some of those customers, he suggested.
Trace Urdan, an investment analyst at Signal Hill Capital Management llc, agreed that the deal would, over time, advance the transition to digital content.
“You now have at the head of the largest K-12 publisher a management team from Riverdeep that is predisposed to digital content, which may be a much more radical move than the consolidation of the textbook publishers,” said Mr. Urdan, who is based in San Francisco.
He said Riverdeep’s control marks a “generational change” in the company.
But Mr. Millot disagrees that the consolidation will hasten the K-12 publishing industry toward adopting digital formats.
Quite the contrary, he said: Riverdeep’s approach has been, “If you can’t beat them, join them.”
The major educational publishers’ chief assets are their brand recognition and their sales and marketing channels into school districts, Mr. Millot said.
Through its takeover of Houghton Mifflin, Riverdeep gained a powerful platform for selling more of its digital products to school districts, he said.
But now that the two companies are one, and with the addition of the Harcourt divisions, the company would be reluctant to endanger the cash cow of the printed textbook, Mr. Millot said.