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Activist investors appear to be back and are once again using their clout to influence corporate decision making. Occasionally, this can lead to a spinoff such as the case with Bill Ackman’s Pershing Square and Fortune Brands (FO) or Carl Icahn and Motorola. Of course, not every company is looking for outside ‘advice’. Consider the recent news regarding McGraw-Hill (MHP) – after making a lot of noise regarding the US credit rating, the company got some unwelcome news of its own as hedge fund Jana Partners and the Ontario Teachers Pension Plan announced that they had upped their holdings of MHP to over 5% of the company. They believe that breaking up the company will unlock shareholder value and the market seems to agree, as the stock popped 7+% despite a rather brutal day overall. McGraw-Hill is comprised of numerous business units including:
Standard & Poor’s: Credit ratings [you might have heard of them?], data and market indexes, including the S&P500. Revenue of $1.7 billion in 2010, operating profit of $762.4 million.
McGraw-Hill Financial: CapitalIQ data services for financial services firms; Credit-ratings-related information such as RatingsXpress and RatingsDirect. Revenue of $1.19 billion in 2010, operating profit of $314.9 million.
McGraw-Hill Education: Textbooks and instructional materials. Revenue of $2.43 billion in 2010 (39% of total company revenue), operating profit of $363.4 million.
Information and Media: Includes J.D. Power and Associates; Platts energy and commodities information; McGraw-Hill Construction; Aviation Week and nine local TV stations. Revenue of $907.5 million in 2010, operating profit of $160.4 million.
The company quickly responded that it is reviewing its businesses on its own and doesn’t require any assistance. The company has been family controlled for over a century (the CEO is a McGraw) and the family still controls a nice stake in the company which should make bullying management a tall task. However, don’t underestimate Jana who recently boosted their stake in El Paso (EP) just prior to its breakup announcement. I have met the guys there and they are very good investors and the fund has a strong reputation.
Another company under fire from investors is financial services company Genworth (GNW). During a recent conference call, CEO Michael Fraizer, announced that the company was preparing itself for a split and upping its share buyback. Quite a different call than the one from last fall where ex-Frontpoint manager Steve Eisman (yes, he of the Big Short) famously lambasted the company about its awful performance (please enjoy).
Genworth, itself spun out from GE (GE) in 2004, would split its mortgage insurance business from its life insurance and wealth management divisions. The company had a rough Q2, suffering a loss of $96m, including ~$250m from its mortgage unit.
Mr. Fraizer said not to expect a move anytime soon though due to the market conditions as well as some lingering capital structure issues. The announcement was well received, but not everyone is a fan of the name.
We will keep you updated as more information is released.
Disclosure: Author is long El Paso (EP)
