After pressure by shareholders in the past year The McGraw-Hill Companies (NYSE:MHP), , the longtime business and education publisher, decided to split into two publicly-traded companies. One of the companies will be called McGraw-Hill Markets, which will feature business and financial publisher Standard & Poor's, while the other company, to be called McGraw-Hill Education, will emphasize education and textbook publishing. (For more check out What Are Corporate Actions?)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

More on the Split
A part of the specialized business and educational publishing field populated by such companies as John Wiley & Sons (NYSE:JW.A), Pearson Plc (NYSE:PSO), Thomson Reuters (NYSE:TRI) and Scholastic (Nasdaq:SCHL), McGraw-Hill will enter a new era as two companies. McGraw-Hill education will include not only its traditional textbook publishing, but the growing digital business. McGraw-Hill markets will include S&P as well as JD Power and Associates.

Since 2006, the stock has been down more than 40%. The company, which forecasts revenue of around $2.4 billion for this year, was pressured by activist investors Jana Partners LLC along with the Ontario Teachers' Pension Plan. Nearly 90% of the company's second quarter $358.8 million operating income was from McGraw's financial units, including S&P. The activist investor groups, which hold around 5% of McGraw-Hill's shares, wanted the company split into four divisions and will review the proposed split. The company will also step up its share repurchase plan, which has already bought back more than $500 million worth of shares and is slated to eventually buy $1 billion worth this year. It also intends to reduce costs.

A Rich History
McGraw-Hill has a rich history, which reaches back into 1909 when James McGraw and John Hill combined their book businesses and named it McGraw-Hill Books. McGraw had started his company in 1899 while John Hill's began in 1902. The company became McGraw-Hill Publishing in 1916, then grew and expanded well beyond its original book business. The company started Business Week magazine in 1929 and by 1966 bought Standard & Poor's. While the company has had a long history of success, it's had some bumps and controversy, too. Fast forward to 2011, when S&P famously downgraded U.S. debt and the Justice Department investigated S&P ratings on subprime mortgages.

A Difficult Industry
Business and educational publishing can be a difficult business. Trends for print book, newspaper and magazine publishers have faced the well-known challenge of reader migration to digital, but the big names in the sector are still doing well. John Wiley & Sons' recent earnings showed a net profit margin of 9.9%, similar to Pearson's. Wiley's operating margin of more than 14% was impressive, especially when you consider Scholastic's was in the 5% range. Scholarly, medical and corporate were strong for Wiley. With admittedly a different product mix and segments, McGraw-Hill's operating margin for its last quarter was 22.7%, up from 22.1% in its year-ago quarter.

The Bottom Line
The investor groups which forced McGraw-Hill's split (or at least pushed the company into action it might have otherwise taken much more slowly) shows how deep the dissatisfaction runs with shareholders. McGraw-Hill's numbers also shows its heavy dependency on its S&P results. S&P has been the center of controversy lately with its ratings agencies, so its premier brand might be a bit bruised. Some wanted the company to go further, to break it up and sell the divisions instead, with estimates that its pieces would return as much as 40% more than current value. (To learn more about the S&P, read The Biggest S&P Missteps.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  2. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  3. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  4. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  5. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  6. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  7. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  8. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  9. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  10. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center