Check Out JANA Capital Partners' Awesome Presentation On Why To Split McGraw-Hill Into 4

Barry RosensteinBarry Rosenstein

Photo: New York Social Diary

Barry Rosenstein’s hedge fund JANA Capital Partners and the Ontario Teachers’ Pension Plan  have called for McGraw-Hill, the owner of ratings agency Standard & Poor’s, to be split into four separate entities.To prove their points, the managers put together an interesting presentation to present to McGraw Hill last week. We’ll take you along step-by-step.

ANA and OTPP suggest dividing the company into four separate units: S&P, the S&P Index business, McGraw-Hill education arm and information and media business.

Disclosure: Rosenstein’s hedge fund along with the OTPP own a 5.6% stake in the company, according to Market Folly.

via Market Folly

JANA says McGraw Hill's conglomerate structure has significantly constrained the businesses operational performance.

JANA believes McGraw-Hill has failed to maximise value because of operational underperformance, inefficient capital allocation and structural complexity.

Independently, McGraw-Hill's assets are attractive.

Together, they are undervalued.

The diversification has little upside as it didn't shield investors from a downturn.

These are the companies McGraw Hill owns and should separate.

A closer look at the companies...

Shows that some are disadvantaged by being part of a conglomerate, like MH Education.

And it's losing share value

And thus dragging down McGraw Hill's portfolio

A standalone Info and Media business would be better positioned for M&A

McGraw-Hill is also disadvantaged by owning two very different ratings companies: MH Financial and S&P Ratings. The first is diverse with growth potential; the second is subject to more regulations and has little growth potential.

S&P limits overall company leverage because of perceived conflicts of interest

McGraw-Hill's business entities lack synergies, JANA says.

Changing McGraw-Hill's corporate structure would allow the company to explore value-creation opportunities, JANA says.

JANA recommends immediate separation of McGraw Hill's businesses

McGraw-Hill went from publishing railroad journals to downgrading U.S. government debt.

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