The Wall Street Journal reports that Jana Partners (a hedge fund) and the Ontario Teachers' Pension Plan have increased their equity stake in McGraw-Hill and may be pushing the company to break up in the near future. I found the news quite interesting, because it's been apparent for quite some time that the whole was not worth more than the sum of the parts. Last year, a team of my first-year MBA students performed a strategic analysis of McGraw-Hill for their course project. They concluded that McGraw-Hill's businesses did not fit together. The company operates a financial services unit, which includes the S&P credit rating agency. It also operates a large, but struggling, education unit (which sells textbooks, for example), and it has several television stations in its portfolio. McGraw-Hill divested Business Week last year. The synergies among these varied units are rather limited.
Of course, investors have known this for some time, as has the management team. Even a team of first-year MBAs could see rather easily that one had a hard time justifying this strategy given the limited economies of scope. Yet, the company has remained intact. It shows how difficult it can be for management to break up a company... particularly one that has a long and storied history of family ownership and leadership. Chairman and Chief Executive Harold McGraw III's great-grandfather founded the company in 1888. I'm sure that the family legacy makes it difficult to ponder breaking up the firm. One reason for that may be that a break-up might put the company in play. Firms may swoop in to try to acquire the various parts, and the firm may have a hard time remaining independent and family-controlled.