Bowing to pressure from activist investors, McGraw-Hill has announced a plan to split off into two separate companies, Reuters reports. The company will split off its market data arm, which comprises Standard & Poor's rating agency, recently in the news for downgrading U.S. Sovereign debt. Its education and textbook business will become a separate entity as well.
The company has been under pressure for three weeks from Ontario Teachers' Pension Plan and Jana Partners, a New York hedge fund, who, together, own 5.2% of McGraw-Hill stock. Jana and Ontario Teachers were pushing the media giant to split into four companies. According to HedgeFund.Net, the two-entity plan, announced Monday, is an attempt to meet the investors "half-way."
Commenting on the decision, McGraw-Hill said that the company management and the board of directors feel that the two-company plan makes the best financial sense.
The split, which will be completed by the end of 2012, will create McGraw-Hill Markets and McGraw-Hill Education.
The markets subsidiary will include the profitable Standard & Poor credit rating agency and the energy information provider Platts. The education arm will focus on textbooks and digital learning serving kindergarten to college-age students.
Kitchen Table Math, a blog focusing on politics of public education, speculates that investor activism could be an interesting weapon in education reform. In this case, Ontario Teachers' Pension Fund leveraged its large holding to effect real change in the way a company operates. This could set a good example for other teachers' pension funds, to use their capital-under-management in a similar way, putting real teeth behind the "activist" part of "investor-activist."
[Y]ou can nucleate other shareholders around you and force management votes and proxy battles, and cause massive headaches for management, who will often have a large risk of being voted out, and if they do not, they will make concessions to activists to reform their company policies and educational products.