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Houghton Mifflin to Buy Harcourt for $4 Billion


Educational textbook publisher Houghton Mifflin Co. agreed Monday to buy the remaining U.S. units of scientific and medical publisher Reed Elsevier for $4 billion in cash and stock, creating what could become the largest K-12 publisher in the country in terms of market share.


The Boston-based division of Houghton Mifflin Riverdeep Group PLC will pay $3.7 billion in cash and $300 million in common stock of its parent company to acquire Harcourt Education, Harcourt Trade and Greenwood-Heinemann.


The sale of the divisions of Dutch-Anglo publisher Reed Elsevier is expected to be completed in late 2007 or early 2008, and is subject to regulatory approval, Houghton Mifflin said.


Houghton Mifflin is among four companies controlling about 90 percent of the K-12 publishing industry in the nation, said Drew E. Corum, an analyst for Stifel Nicolaus & Co. It accounts for an estimated 15 percent of the market share, and Harcourt controls just over 20 percent. The combined company will account for between 35 percent and 40 percent of the market well ahead of rivals, Crum said.


The deal would enable the new company to operate more efficiently in the short term and draw market share from rival McGraw-Hill Cos. and Pearson PLC in the long term, Crum said.


Reed Elsevier announced earlier this year its intention to sell its education publishing businesses to focus on more profitable publishing units. In May, Pearson PLC agreed to buy Harcourt Assessment and Harcourt Education International for $950 million.


That deal and the one announced Monday enable Reed Elsevier to earn $4.95 billion from selling the whole of its Harcourt Education division.


Barry O’Callaghan, the principal shareholder of Houghton Mifflin, said the merged business “will be able to develop and bring new products to market more quickly than would have been possible for either of us on a standalone basis.”


The combined company also will be able to compete more effectively with smaller, specialized educational publishers, a Houghton Mifflin spokesman said in a statement.


Credit Suisse Group, Lehman Brothers Holdings Inc. and Citigroup Inc. have committed to provide debt financing, Houghton Mifflin said. Existing investors, including J & E Davy, are set to provide $235 million of new equity financing. Once the deal closes, Reed Elsevier will own 11.8 percent of shares in Houghton Mifflin’s parent company. A Houghton Mifflin spokesman declined to provide additional details.


“Following the sale, Reed Elsevier will be a sharper and more focused company,” said Reed Elsevier CEO Sir Crispin Davis. “With our leading brands and authoritative content, we are well positioned to maximize the digital opportunities in our chosen markets.”


Houghton Mifflin traces its origins to 1832. It was home to early American authors such as Ralph Waldo Emerson and Henry David Thoreau, as well as J.R.R. Tolkien.


Harcourt Education Inc. publishes educational materials and books in the United Kingdom, Australia, New Zealand, Southern Africa and South East Asia. The company publishes for students and educators, including reference publishing and online services, for schools, professional, academic and reference publishing, and test bureau services.


Reed Elsevier is owned equally by two parents companies, Reed Elsevier PLC and Reed Elsevier NV. Reed Elsevier PLC’s American Depositary shares gained 71 cents, or 1.3 percent, to close at $54.83, a new 52-week high. Reed Elsevier NV’s shares gained 45 cents, or 1.1 percent, to close at $40.49, also a new 52-week high.


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