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McGraw-Hill said Monday that it reached a deal to sell its education arm to private equity firm Apollo Global Management LLC for $2.5 billion in cash and debt, as part of its plan to focus on its financial information businesses.
As part of the deal, McGraw-Hill will receive $250 million in Apollo debt with an annual interest rate of 8.5 percent. The acquisition includes the New York-based company's digital and traditional textbook business and other assets.
The sale is expected to close in late 2012 or early 2013. At that time, The New York-based McGraw-Hill Cos. will be renamed McGraw Hill Financial. Harold McGraw III, McGraw-Hill's current chairman, president and CEO, will head that company.
McGraw Hill Financial expects 2012 revenue of about $4.4 billion. It plans to provide 2013 financial guidance when it announces its 2012 fourth quarter and year-end financial results.
Harold McGraw said the sale will boost value for the company's shareholders, give the company added financial flexibility and allow it to focus on growing brands like Standard & Poor's, S&P Capital IQ, Platts and J.D. Power and Associates.
The company said it plans to use the proceeds from the sale, estimated at $1.9 billion, to fund its stock buyback program, make acquisitions and pay off debt.
Starting in the fourth quarter, McGraw-Hill will classify the education business as discontinued operations. It expects to take a non-cash impairment charge in the fourth quarter of about $450 million to $550 million related to the division.
McGraw-Hill first announced plans to split into two companies in September 2011 through either the sale or the spin-off of the education arm. Earlier this month, the company reported a 14 percent drop in third-quarter net income, partially as a result of the planned split.
McGraw-Hill shares rose 20 cents to close at $51.89 Monday, off its session high of $53.60. Shares of New York-based Apollo fell 6 cents to $15.27, regaining most of its earlier drop to $15.12.