HM Will Keep Trade Unit

The announcement that the Irish-based educational software publisher Riverdeep has reached an agreement to acquire Houghton Mifflin set off the usual round of industry speculation about the fate of the trade and reference division in a company where more than 90% of revenue will come from educational publishing. Indeed, in his prepared comments, HM CEO Tony Lucki, who will be vice-chairman in the new company, touted the primary benefit of the merger as combining Riverdeep's electronic courseware with HM's textbook and supplementary materials to provide new products for the school market. But HM spokesperson Collin Earnst insisted that there are no plans to sell any HM divisions, including the trade and reference group, which he called "an important part of our heritage." In addition, Earnst said, the trade/reference group is a complement to the educational group, and he noted that many trade titles are sold into the school and college markets.

Several veteran players in the mergers and acquisitions field said they could make a case for both selling or keeping the unit. One factor favoring a sale is the huge debt the combined company, to be called Houghton Mifflin Riverdeep Group, will be carrying. In addition to paying $1.75 billion in cash, the new company is assuming $1.6 billion in debt, a figure that will be considerably higher once financing is in place to complete the purchase. The sale of the trade/reference group would likely generate about $200 million, a small start toward paying down the debt.

Absent the need for cash, however, the dealmakers said they expect the trade division to remain part of HM. "Unless there's a need to sell it, I doubt they will," one said. Although the division's sales have fluctuated in recent years, the unit has been consistently profitable. HM boasts a backlist of about 4,000 titles, including such steady sellers as Silent Spring and The Heart Is a Lonely Hunter. In 2006, the adult side of the unit will publish 75 hardcovers and 100 trade paperbacks, while the children's group will publish 302 titles. Through the first nine months of 2006, sales were down slightly, dropping to $94.2 million from $95.6 million. Curious George has been a hit for the children's group this year, selling more than one million copies of various movie and TV tie-in editions. The adult group took a National Book Award last month, for Timothy Egan's The Worst Hard Time, which prompted a new printing of 25,000 copies. Philip Roth's Everyman has done well this year, and the author didn't seemed concerned about HM's new owners, signing last week to publish Exit Ghost, his final book to feature the character Nathan Zuckerman, with his longtime publisher.

Houghton Mifflin Revenue
($ in millions)