McGraw-Hill Seen Returning 40% More in Pieces

McGraw-Hill Cos., which does everything from selling textbooks to rating government bonds and compiling car surveys, may be worth at least 40 percent more if sold and broken into pieces.

Founded by Sir James McGraw after he bought the “American Journal of Railway Appliances” in 1888, McGraw-Hill has lost a third of its value since 2006 as budget cuts by state and local governments caused school textbook sales to fall in four of the past five years and its AAA ratings on bonds backed by subprime mortgages proved to be wrong. The $11.7 billion company, which also owns Standard & Poor’s and J.D. Power & Associates, now trades for less per dollar of revenue than any of its closest rivals, according to data compiled by Bloomberg.

By breaking up McGraw-Hill and valuing its businesses separately, its shareholders could get about $5 billion more, JPMorgan Chase & Co. said. That would help Chief Executive Officer Terry McGraw, 62, recoup some of the money owners lost as the shares fell more than competitors. Jana Partners LLC and Ontario Teachers’ Pension Plan proposed splitting up McGraw-Hill this week, while the company said two days ago it would replace S&P’s president after a decision to downgrade the U.S. for the first time sparked criticism over its credit-ratings process.

“A breakup is better,” Michael Holland, chairman of New York-based Holland & Co., which oversees more than $4 billion, said in a telephone interview. McGraw-Hill has “value that isn’t being reflected in the market today. They just have really good brands. The CEO and the board have to consider if they want to unlock value,” he said.
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