PSO Pearson Plc

With intent of boosting the shareholders value The McGraw-Hill Companies Inc (MHP), recently announced extensive growth and value measures, including the separation of the company into two independent companies, McGraw-Hill Markets and McGraw-Hill Education.

Since last year, the company has been reviewing its business segments and the call was obvious as the company lost a substantial market value in last 5 years and its rating agency was under fire for its latest U.S. downgrade.

Moreover, the New York-based hedge fund Jana Partners and the Ontario Teachers' Pension Plan, holding approximately 5.2% joint stake in the company, were pushing it to split into four separate firms.

Going with its plan, the company aims to create two "focused companies” with optimal-size capital and cost arrangement for amplifying client commitment and improving strategic and economic suppleness while increasing management’s focus and responsibility.

Further, the company added that it will focus on abridging costs drastically to ensure competent operating channels and will also accelerate the pace of share buybacks to a total of $1 billion for the fiscal year 2011. Year-to-date, McGraw-Hill had repurchased 14.1 million shares for approximately $540.6 million.

McGraw-Hill added that it has engaged The Goldman Sachs Group Inc. (GS) and Evercore Partners Inc. (EVR) as the financial advisors to guide the company during the evaluation period.

Getting to the Companies

McGraw-Hill Markets will be led by Terry McGraw as Chairman, President and CEO and will focus on capital and commodities markets and will include the iconic brands like Standard & Poor's, S&P Indices, S&P Capital IQ and Platts.

Moreover, McGraw-Hill Markets will also include the businesses of J.D. Power and Associates and leading franchises in the construction and aerospace industries.

The company added that it expects revenues of approximately $4 billion from McGraw-Hill Markets in fiscal 2011 with approximately 40% of it coming from international avenues.  

McGraw-Hill Education will be currently led by Robert Bahash, existing President of the Education division as the company is in the process of recruiting a new CEO for McGraw-Hill Education.

McGraw-Hill Education will focus on education services and digital learning and will speed up growth strategies and supplement its growth through digital services and buyouts.

The company stated that it expects McGraw-Hill Education to generate revenues of approximately $2.4 billion in fiscal 2011.  

Wrapping Up

McGraw-Hill expects to complete the transaction by the end of 2012 through a tax-free spin-off while the separation plan is subject to the approval by the board of directors.

The McGraw-Hill Companies is a diversified publisher and provider of financial information, and also offers media services to customers in over 40 countries.

McGraw-Hill has regularly paid dividends since 1937. Since 1974, the company has boosted its dividend at a compound annual dividend growth rate of 9.8% and is now among those S&P 500 companies (about 25), which have raised dividend annually for the 38^th straight year.

Currently, we have a long-term Neutral rating on McGraw-Hill, which competes with Pearson plc (PSO). Moreover, the company holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.

 
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