Riverdeep in €2.9bn buyout of US publisher

Irish businessman Barry O'Callaghan's Houghton Mifflin Riverdeep group is buying Reed Elsevier's US educational publishing arm for €2.9 billion.

Houghton Mifflin yesterday agreed to buy the Harcourt and Greenwood Heinemann business from the Anglo-Dutch Reed Elsevier group for $4 billion (€2.9 billion).

The deal comes seven months after Mr O'Callaghan led Riverdeep into a reverse takeover of the Boston-based Houghton Mifflin for $4.95 billion, in the biggest such deal ever completed by an Irish company.

He is the principal shareholder in Houghton Mifflin through its parent, Houghton Mifflin (HM) Riverdeep plc, controlling about 47 per cent of the company.

Houghton Mifflin will buy Harcourt for $3.7 billion in cash and $300 million worth of HM Riverdeep stock.

As a result, Reed Elsevier will end up owning 11.8 per cent of HM Riverdeep.

Most of the finance for the deal will come through loans provided by banks Credit Suisse, Lehman Brothers and Citigroup.

Existing investors, including Irish stockbrokers J&E Davy, are committed to providing $235 million of new equity to support the deal.

Mr O'Callaghan set his sights on buying Harcourt five months ago when Reed Elsevier announced its intention to sell the division.

Commenting on the deal yesterday, Mr O'Callaghan said he was "thrilled" to have the opportunity to combine the businesses.

"The addition of the Harcourt business to Houghton Mifflin will strengthen our position in the highly competitive educational publishing business," he said.

"We will be able to develop and bring new products to market more quickly than would have been possible for either of us on a standalone basis."

Tony Lucki, chairman, president and chief executive of of Houghton Mifflin and former chief executive of Harcourt Education, will lead the combined businesses.

He said both companies had similar cultures and commitment to quality, and added that the enlarged group would be better placed to meet customers' changing needs.

Riverdeep originally specialised in educational software, but expanded into publishing with the Houghton Mifflin merger.

Houghton Mifflin publishes a range of educational books for the primary, secondary and third-level markets in the US. It also has non-fiction and reference divisions. It was founded in Boston in 1823.

Harcourt was established in New York in the early years of the last century. It specialises in primary and secondary education text books, and has a range of reference and adult literacy products.

Educational publishers are popular buyout targets for the private equity industry as they deliver strong cash flows.

In May, Apax Partners and OMERS Capital Partners paid $7.7 billion for Thomson Learning, the education unit of Thomson Corp.