Houghton-Harcourt Deal Seen as Yielding Big 3 of Textbooks

By Kathleen Kennedy Manzo & Andrew Trotter — July 16, 2007 3 min read
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Houghton Mifflin Co. announced July 16 that it plans to buy Harcourt Education from Reed Elsevier Group PLC for $4 billion, a move that would narrow the field of large K-12 textbook publishers to three.

The acquisition would leave the 175-year-old Boston-based Houghton Mifflin, Pearson Education, and the McGraw-Hill companies as the dominant suppliers of schoolbooks to the nation’s elementary and secondary schools. Pearson Education is based in Upper Saddle River, N.J., and McGraw-Hill’s headquarters is in New York City.

“The textbook-publishing industry has seen a great deal of mergers and acquisitions over the past eight to 10 years,” said Jay Diskey, the executive director of the Washington-based school division of the Association of American Publishers. “This latest one, if it goes through, will in essence leave three very large companies doing 80 [percent] to 85 percent of the K-12 textbook sales.”

A number of smaller publishers round out the market, Mr. Diskey noted.

If the deal goes through, “clearly from a pure revenue perspective, there’s a new leader in the K-12 space,” said Adam J. Newman, the managing vice president of Boston-based Eduventures Inc., an education market-research firm. “It certainly is a significant competitive challenge to McGraw-Hill and Pearson.”

Earlier Merger

Houghton Mifflin itself merged late last year with the Dublin, Ireland-based software company Riverdeep; the parent company is now known as Houghton Mifflin Riverdeep Group PLC. (“Houghton Mifflin’s Sale to Software Maker Reflects Trend,” Dec. 6, 2006.)

The Harcourt Education Companies 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 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 of 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.

The transaction, which is subject to regulatory review by the U.S. Department of Justice and the Federal Trade Commission, is expected to be completed by early next year.

Transition From Textbooks?

One key result of the deal, Mr. Newman said, is that it will 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.”

Although the deal suggests the emergence of a Big Three in educational publishing, the 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,” Mr. Newman said.

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.

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