August 22, 2011 / 9:18 PM / 6 years ago

McGraw-Hill gets earful on breakup

NEW YORK (Reuters) - McGraw-Hill Companies Inc directors and executives met on Monday with Jana Partners LLC, a hedge fund, and the Ontario Teacher’s Pension Fund to hear their arguments that the company should be broken up.

Jana and the pension fund have a 5.6 percent stake in McGraw-Hill, which owns Standard & Poor’s credit ratings business, textbook publisher McGraw-Hill Education, and assorted information businesses, the funds said in a filing on Monday.

Jana included slides from the presentation in the filing to the Securities and Exchange Commission. The filing showed the shareholders have increased their holdings by 0.4 percent since an initial filing on August 1.

McGraw-Hill is already considering spinning off or selling the education business, a person familiar with the company said last week. In June, the company put its television stations up for sale.

In response to the filing, the company said in a statement that its portfolio review “is well advanced and expected to result in significant actions in the next few months to accelerate global growth, align appropriate cost structures and build shareholder value.”

The company noted that it has hired investment banking advisors Evercore and Goldman Sachs to work on its restructuring.

The shareholders said in the filing that they are concerned the company’s actions “will not go far enough in addressing its issues.”

McGraw-Hill shares are trading below the value of the company’s four major parts, according to analysts. The stock has been suffering, too, from weakness in the education business because of tight school budgets.

The investors charged in the filing that the company “has consistently underperformed its potential” due to the inefficiency and complexity of its corporate structure.

McGraw-Hill “should promptly” separate its education business, its information and media division and its Standard & Poor’s index business, the filing said.

The investors also called for the company to “bolster” Standard & Poor’s ratings service with “an independent oversight figure.”

The service has been criticized in Washington for how it recently downgraded the U.S. government credit rating from AAA to AA-plus earlier this month.

The ratings business faces new regulations because S&P and other agencies gave their highest investment grades to mortgage-related securities which then plunged in value when house prices collapsed.

The presentation contends McGraw-Hill stock could be as much as $21 a share higher, more than 50 percent above the current price, if the company were broken up and managed better.

McGraw-Hill shares closed today at $37.04, up four cents for the day. They traded at $41.60 on July 29, the last trading day before the investors first disclosed their push for changes.

The stock tends to rise and fall with the outlook for the credit markets which provide S&P with ratings revenues and which have been troubled this month.

A number of stock analysts have said that the company’s pieces are worth more than $50 a share.

Reporting by David Henry; editing by Andre Grenon, Phil Berlowitz

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