When McGraw-Hill Cos. announced its plan to split the company in two last month, the move raised many questions.
First, how would the market react to the plan that would create two new public companies: McGraw-Hill Markets and McGraw-Hill Education?
In the first several days of trading, the market's reaction was emphatically positive. The company's share price jumped 17% as the market cheered the proposed creation of McGraw-Hill Education, which under the plan will become an independent business operating in the K-12, higher education and professional education markets.
The other half of the company, McGraw-Hill Markets, will comprise Standard & Poor's, Platts, J.D. Power and Associates, McGraw-Hill Construction and the Aviation Week brand. Harold “Terry” McGraw III, currently chairman and president-CEO of McGraw-Hill Cos., will hold the same title at McGraw-Hill Markets.
Second, the announcement raised questions about the split signaling the end of McGraw's hold on the CEO position. Others see the move as a sign of his security as the head of the newly created McGraw-Hill Markets. “If you would have asked me that two weeks ago, maybe,” Mike Parker, managing director of AdMedia Partners, said when asked whether McGraw's tenure was in danger of ending. “But now the board has been willing to give Terry and other members of the management team a fair chance. So the answer is probably not at this point.”
Third, some questioned why the splitting off of McGraw-Hill's education business wasn't done earlier. Ultimately, the move to separate the education unit was at least 20 years in the making. McGraw-Hill has been looking to find a home for its education business for decades, said Robert Crosland, an industry consultant.
In 1989, McGraw-Hill took one step out of the education business by merging its textbook publishing business with Macmillan Inc. to form a joint venture called Macmillan/McGraw-Hill School Publishing Co. At the time, the deal created the second-largest textbook publisher in the U.S.
The joint venture went sour when Robert Maxwell, the owner of Macmillan, died under mysterious circumstances in 1991 and his publishing empire, which included Macmillan, was liquidated. McGraw-Hill, taking advantage of an attractive price, eventually made a full-fledged re-entry into the education business by buying Macmillan in 1993 for a fraction of what Maxwell had paid for it five years earlier.