The McGraw-Hill Companies MHP
McGraw-Hill's conglomerate structure masks four independently attractive assets; separating MH Education, Information & Media and the S&P Index business plus an accelerated buyback unlocks ~60% upside to ~$65.
Thesis
McGraw-Hill has persistently traded at a ~25% conglomerate discount to peers (12.6x forward P/E vs 15.9x weighted peer average) and returned just 2% over three years versus a 31% peer average, despite housing four independently attractive businesses: S&P Ratings, MH Financial, MH Education and Information & Media. JANA Partners and Ontario Teachers' Pension Plan argue the structure delivers no real synergies, drives sub-peer margins (S&P Ratings 38% vs Moody's 42%; MH Financial 24% vs MSCI 38%) and lets regulatory overhang from S&P Ratings infect the whole portfolio. They demand immediate separation of MH Education, Information & Media and the S&P Index business, collapsed corporate overhead to bridge the peer margin gap, accelerated buybacks, and an independent oversight figure at S&P Ratings — a combination that bridges the stock from $40.75 to roughly $65 per share.
SCQA
McGraw-Hill houses four independently attractive businesses — S&P Ratings, MH Financial, MH Education and Information & Media — inside a conglomerate that just announced a portfolio review and intent to take 'significant actions' in 2011.
The structure delivers no synergies, drives sub-peer margins, ties every segment to S&P Ratings' regulatory overhang, and produced a 2% three-year TSR versus 31% for peers; a muted market reaction signals investors doubt management will go far enough.
Separate MH Education, Information & Media and the S&P Index business, collapse corporate overhead to reach peer margins, accelerate the authorized share buyback, and install an independent oversight figure at S&P Ratings.
Eliminating the conglomerate discount (~$11), cutting corporate costs (~$6), executing the buyback (~$3.50) and bridging the peer margin gap (~$4) takes McGraw-Hill from $40.75 to roughly $65 — ~60% upside.
The three reasons
- 1
McGraw-Hill trades at ~25% conglomerate discount to peers (12.6x vs 15.9x fwd P/E)
- 2
No real synergies across S&P Ratings, MH Financial, Education and Information & Media
- 3
Breakup, cost cuts and buyback bridge share price from $40.75 to ~$65 (~60% upside)
Primary demands
- Separate McGraw-Hill Education
- Separate Information & Media
- Separate the S&P Index business
- Collapse corporate overhead and right-size segment cost structures to achieve peer margins
- Accelerate the authorized share buyback ahead of the separations
- Bolster S&P Ratings with a well-known independent oversight figure
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- IHS standalone focus and acquisition-driven value creation
- Moody's Corporation post-Dun & Bradstreet spin as a pure-play rating agency
Notable slides (6)
Notes
Joint filing by JANA Partners and Ontario Teachers' Pension Plan (OTPP); disclaimer page names both as 'the Shareholders'. No stake percentage disclosed in the deck body. Structural critique rather than personal — no CEO named as villain, but CEO Harold McGraw III is quoted (Q2 2011 call: 'McGraw-Hill Financial is a completely different business than S&P') to support the breakup logic. Deck was filed as Exhibit B to a 13D amendment on SEC EDGAR; the PDF render alternates content pages with blanks (artifact of the SEC HTML-to-PDF conversion), so the 53 PDF pages correspond to ~26 actual slides. Classic conglomerate-discount sum-of-parts playbook; precedent invoked is IHS. Outcome: McGraw-Hill agreed in September 2011 to spin off Education (ultimately sold to Apollo 2013) and rebrand as McGraw-Hill Financial — largely a JANA win.