EMPG
Encyclopedia
Education Media and Publishing Group, more commonly known as EMPG, is a holding company registered in the Cayman Islands with no operating subsidiaries. It also has a minority interest in an affiliate that focuses on markets outside the USA called EMPGI
. In January 2009 the two big credit rating services, Moody's Investor Services and Standard & Poor's, reduced the rating of EMPG and warned that default on its debt was increasingly likely. On 10 April 2009 Moody's downgraded Houghton Mifflin Harcourt down to Caa3 from Caa1. In August 2009, EMPG announced that it had substantially reduced its debt, relaxed covenants and received incremental working capital facilities. Prior to March 2010, EMPG owned the legacy Riverdeep and Houghton Mifflin Harcourt businesses, which it acquired in 2006 and 2007, respectively.
had completed its acquisition of Houghton Mifflin. The new joint enterprise would be called the Houghton Mifflin Riverdeep Group plc, a company based in Ireland. Riverdeep paid $1.75 billion in cash for the equity owned the private investment firms Thomas H. Lee Partners
, Bain Capital
and The Blackstone Group and assumed $1.61 billion in debt. Tony Lucki, a former non-executive director of Riverdeep, remained in his position as Houghton Mifflin's chief executive officer.
for $4 billion. The expanded company would become Houghton Mifflin Harcourt. The holding company structure of Houghton Mifflin Riverdeep plc was re-organised with a new holding company based in the Cayman Islands. This company was called Education Media and Publishing Group, EMPG for short.
At the time of the formation of HMH Lucki said "Together, we will be better positioned to meet the changing needs of educators and students in a wider range of subjects, states and school districts".
On 27 November 2008, President Jeremy Dickens told the New York Times that the company had $7bn of debt, which cost the company $500m per annum to service. The money to fund the 2006 Houghton Mifflin and 2007 Reed Elsevier acquisitions was borrowed, and in retrospect Education Media and Publishing Group (Riverdeep) probably overpaid for both companies.
In May 2008, Cengage Learning
(formerly Thomson Learning) acquired the assets of the Houghton Mifflin College Division for $750 million.
The combined business was led by Tony Lucki, who had more than thirty years of publishing experience, until his replacement in April 2009 by Barry O'Callaghan
.
In January 2009, Reed Elsevier dropped its valuation of their 11.8% stake in EMPG to just €15m. This values the group at around 5% of its original claimed worth, leaving Chairman Barry O'Callaghan with few options now that S&P
rates the group CCC.
newspaper reported that was in the process of a re-structuring negotiations with its unsecured-debt holders that would lead to the conversion of the debt into equity. The news story reported that the unsecured debt holders would receive a 45% equity stake. Dubai's royal family to buy up stake in EMPG]> The article estimates that post deal, EMPG would cut its debt from $7.3bn to $6.1bn. On 15 August 2009, the Financial Times
newspaper reported in an interview with Houghton Mifflin Harcourt's CEO, Barry O'Callaghan, that the refinancing had received approval of more than 90% of lenders. The terms included the holding company debt converting into 45% of the fully diluted common equity, an effective 25 per cent relaxation of financial covenants, second lien lenders agreeing to convert their holdings into a PIK instrument, reducing annual interest costs by $100m, and a further $50m increase its working capital facility. Following the announcement of the debt restructuring, the President of EMPG, Jeremy Dickens, previously a lawyer at Weil, Gotshal & Manges, stepped down as President of EMPG.
On 12 September 2009, the Irish Independent
newspaper reported that a circular was posted to shareholders of EMPG with details of the restructuring, including an update on financial performance and a new management incentive plan. In the article it stated that EMPG's earnings before interest, tax, depreciation and amortisation (EBITDA) rose 18pc in 2008 to $750m. Although the article indicated that the outlook for 2009 is uncertain, it highlights that Houghton Mifflin Harcourt has won a 52% market share in all new adoptions in the first half of 2009.
's TD for Dublin South, told journalists that EMPG has failed with equity investors likely to be wipe-out and the Irish taxpayer was exposed since the nationalised bank, Anglo Irish Bank
has lent money to the shareholders of EMPG.
Commented Lee
EMPG confirmed that it was in advanced negotiations with its lenders about a comprehensive restructuring ,that could see a 70% reduction in the current debt levels that would lead to Paulson & Co.
, a hedge fund, becoming the largest shareholder. According to the Financial Times
, second lien investors had not yet approved the plan which would see half of the $5bn of first-lien debt convert into circa 90% of the equity of Houghton Mifflin Harcourt, with the remaining equity for the $2bn second lien investors and the old EMPG shareholders. The Financial Times story indicated that Houghton Mifflin Harcourt was considering a pre-packaged bankruptcy if the negotiations with lenders were not approved.
According to the Irish Times, investors of Davy Stockbrokers
had $475m of equity in EMPG. In contrast to the statement of George Lee that Irish taxpayers were exposed, an Anglo Irish Bank spokesperson was reported by the Irish Times to state that it did not have a “big exposure” to EMPG. However, the spokesperson did not comment on whether it has exposure to individuals that have exposure to EMPG.
Interviewed on Irish State broadcaster, RTE
, Barry O'Callaghan
, Chairman on EMPG and CEO of Houghton Mifflin Harcourt, confirmed that irish investors as well as he himself were facing huge losses. He stated that "no-one has lost more than me". According to the Irish Independent, Barry O'Callaghan is a large personal customer of Anglo Irish Bank. The article stated that Barry O'Callaghan may be forced to step down once the restructuring package was agreed. This contrasted with his interview with the Financial Times
where he insisted that he would continue to run the business.
The agreement, supported by 100% of HMH's creditors, closed on 9 March 2010. Highlights of the agreement included a reduction in the senior debt to $3 billion from the current $5 billion, with new equity issued to the senior debt holders (including Paulson & Co., Guggenheim Partners), conversion of the $2 billion mezzanine debt into equity and warrant, receipt of $650m of new cash from the sale of new equity. In addition to the key highlights, HMH formed a new $100m Innovation Fund to invest in the next generation of technology for the education industry.
According to the Irish Times the investments by the current equity holders of EMPG, including HMH's CEO, Barry O'Callaghan
, private clients of Davy Stockbrokers
, Reed Elsevier, Istithmar and others, would see their investment of over $3.5 billion written down to zero. Following the restructuring, the investors of EMPG retained a nominal investment in Houghton Mifflin Harcourt via warrants over 5% of the company if it exceeded the $10 billion valuation placed on the company at the time of the merger between Houghton Mifflin Riverdeep and Harcourt. In addition to the warrants in HMH, the EMPG shareholders continue to own a stake in the international investment vehicle, EMPGI
which has stakes in China, the Middle East and elsewhere.
After the recapitalization, both the CEO, Barry O'Callaghan
and the CFO, Michael Muldowney, remained in their roles. A new nine-member board was created with the CEO the only executive representative, one independent, two representative of Paulson & Co.
, and one director from each of Apollo Management, BlackRock
, Guggenheim Partners
, Fidelity Investments
, and Avenue Capital.
On 10 March 2010, Houghton Mifflin Harcourt announced that it had completed its re-capitalization. In addition to a new investment of $ 650 million of equity, the debt levels of the company were reduced by approximately 60% and the annual interest payments by over 75%. According the Irish State Broadcaster, RTE
, the old equity investors based in Ireland has lost all their investment. The Irish Independent
reported that the old shareholders were denied a shareholders meeting to vote on discuss the restructuring. The former shareholders have been left with warrants over 5% of the company, in the case its value recovers to previous levels.
and McGraw-Hill
Cos. Inc. are the leading publishers in the global education market.
EMPGI
Education Media and Publishing Group International, more commonly known as EMPGI, is an education company with operations in China, India, Saudi Arabia, and Libya...
. In January 2009 the two big credit rating services, Moody's Investor Services and Standard & Poor's, reduced the rating of EMPG and warned that default on its debt was increasingly likely. On 10 April 2009 Moody's downgraded Houghton Mifflin Harcourt down to Caa3 from Caa1. In August 2009, EMPG announced that it had substantially reduced its debt, relaxed covenants and received incremental working capital facilities. Prior to March 2010, EMPG owned the legacy Riverdeep and Houghton Mifflin Harcourt businesses, which it acquired in 2006 and 2007, respectively.
Riverdeep's acquisition of Houghton Mifflin
On 22 December 2006, it was announced that Riverdeep PLCRiverdeep
Houghton Mifflin Harcourt Learning Technology originally started as Riverdeep Interactive Learning, is a publishing house for educational online and CD-ROM products based in San Francisco and Dublin, Ireland. Founded in 1995, Riverdeep was principally the creation of the Irish ex-investment banker...
had completed its acquisition of Houghton Mifflin. The new joint enterprise would be called the Houghton Mifflin Riverdeep Group plc, a company based in Ireland. Riverdeep paid $1.75 billion in cash for the equity owned the private investment firms Thomas H. Lee Partners
Thomas H. Lee Partners
Thomas H. Lee Partners is a private equity firm based in Boston, Massachusetts specializing in leveraged buyouts, growth capital, special situations, industry consolidations, and recapitalizations....
, Bain Capital
Bain Capital
Bain Capital LLC is a Boston-based private equity firm founded in 1984 by partners from the consulting firm Bain & Company. Originally conceived as an early-stage, growth-oriented investment fund, Bain Capital today manages approximately $65 billion in assets, and its strategies include private...
and The Blackstone Group and assumed $1.61 billion in debt. Tony Lucki, a former non-executive director of Riverdeep, remained in his position as Houghton Mifflin's chief executive officer.
The merger with Harcourt
On 16 July 2007 Houghton Mifflin Riverdeep announced that it signed a definitive agreement to acquire the Harcourt Education, Harcourt Trade and Greenwood-Heinemann divisions of Reed ElsevierReed Elsevier
Reed Elsevier is a publisher and information provider operating in the science, medical, legal, risk and business sectors. It is listed on several of the world's major stock exchanges. It is a FTSE 100 and FT500 Global company...
for $4 billion. The expanded company would become Houghton Mifflin Harcourt. The holding company structure of Houghton Mifflin Riverdeep plc was re-organised with a new holding company based in the Cayman Islands. This company was called Education Media and Publishing Group, EMPG for short.
At the time of the formation of HMH Lucki said "Together, we will be better positioned to meet the changing needs of educators and students in a wider range of subjects, states and school districts".
On 27 November 2008, President Jeremy Dickens told the New York Times that the company had $7bn of debt, which cost the company $500m per annum to service. The money to fund the 2006 Houghton Mifflin and 2007 Reed Elsevier acquisitions was borrowed, and in retrospect Education Media and Publishing Group (Riverdeep) probably overpaid for both companies.
In May 2008, Cengage Learning
Cengage Learning
Cengage Learning is a publisher of print and digital information services for the academic, professional and library markets, and delivers customized learning solutions for colleges, universities, professors, students, libraries, government agencies, corporations and professionals around the...
(formerly Thomson Learning) acquired the assets of the Houghton Mifflin College Division for $750 million.
The combined business was led by Tony Lucki, who had more than thirty years of publishing experience, until his replacement in April 2009 by Barry O'Callaghan
Barry O'Callaghan
Barry O'Callaghan is an Irish businessman, Chairman and CEO of Houghton Mifflin Harcourt , and the Chairman of Education Media and Publishing Group , the Cayman Island holding company for Houghton Mifflin Harcourt....
.
Downgrades in January 2009
In January 2009 the two big credit rating services, Moody's Investor Services and Standard & Poor's, reduced the rating of EMPG and warned that default on its debt was increasingly likely. On 10 April 2009 Moody's downgraded Houghton Mifflin Harcourt down to Caa3 from Caa1.In January 2009, Reed Elsevier dropped its valuation of their 11.8% stake in EMPG to just €15m. This values the group at around 5% of its original claimed worth, leaving Chairman Barry O'Callaghan with few options now that S&P
Standard & Poor's
Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...
rates the group CCC.
Restructuring in August 2009
On 27 July 2009, the Irish IndependentIrish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...
newspaper reported that was in the process of a re-structuring negotiations with its unsecured-debt holders that would lead to the conversion of the debt into equity. The news story reported that the unsecured debt holders would receive a 45% equity stake. Dubai's royal family to buy up stake in EMPG]> The article estimates that post deal, EMPG would cut its debt from $7.3bn to $6.1bn. On 15 August 2009, the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
newspaper reported in an interview with Houghton Mifflin Harcourt's CEO, Barry O'Callaghan, that the refinancing had received approval of more than 90% of lenders. The terms included the holding company debt converting into 45% of the fully diluted common equity, an effective 25 per cent relaxation of financial covenants, second lien lenders agreeing to convert their holdings into a PIK instrument, reducing annual interest costs by $100m, and a further $50m increase its working capital facility. Following the announcement of the debt restructuring, the President of EMPG, Jeremy Dickens, previously a lawyer at Weil, Gotshal & Manges, stepped down as President of EMPG.
On 12 September 2009, the Irish Independent
Irish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...
newspaper reported that a circular was posted to shareholders of EMPG with details of the restructuring, including an update on financial performance and a new management incentive plan. In the article it stated that EMPG's earnings before interest, tax, depreciation and amortisation (EBITDA) rose 18pc in 2008 to $750m. Although the article indicated that the outlook for 2009 is uncertain, it highlights that Houghton Mifflin Harcourt has won a 52% market share in all new adoptions in the first half of 2009.
Rumored Shareholder Wipe-out
On 13 January 2010, Irish politician, George Lee, the opposition party, Fine GaelFine Gael
Fine Gael is a centre-right to centrist political party in the Republic of Ireland. It is the single largest party in Ireland in the Oireachtas, in local government, and in terms of Members of the European Parliament. The party has a membership of over 35,000...
's TD for Dublin South, told journalists that EMPG has failed with equity investors likely to be wipe-out and the Irish taxpayer was exposed since the nationalised bank, Anglo Irish Bank
Anglo Irish Bank
Anglo Irish Bank was a bank based in Ireland with its headquarters in Dublin from 1964 to 2011. It went into wind-down mode after nationalisation in 2009....
has lent money to the shareholders of EMPG.
Commented Lee
EMPG confirmed that it was in advanced negotiations with its lenders about a comprehensive restructuring ,that could see a 70% reduction in the current debt levels that would lead to Paulson & Co.
Paulson & Co.
Paulson & Co. Inc. is a hedge fund sponsor owned by its employees and founded in 1994 by John Paulson.-Overview:Paulson & Co. Inc. is an employee-owned, hedge fund headquartered in New York, New York...
, a hedge fund, becoming the largest shareholder. According to the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
, second lien investors had not yet approved the plan which would see half of the $5bn of first-lien debt convert into circa 90% of the equity of Houghton Mifflin Harcourt, with the remaining equity for the $2bn second lien investors and the old EMPG shareholders. The Financial Times story indicated that Houghton Mifflin Harcourt was considering a pre-packaged bankruptcy if the negotiations with lenders were not approved.
According to the Irish Times, investors of Davy Stockbrokers
Davy Stockbrokers
Davy is Ireland's largest stockbroker, wealth manager and financial advisor and has offices in Dublin, Belfast, Cork, Galway and London. Davy offer a range of services to private clients, small businesses, corporations and institutional investors....
had $475m of equity in EMPG. In contrast to the statement of George Lee that Irish taxpayers were exposed, an Anglo Irish Bank spokesperson was reported by the Irish Times to state that it did not have a “big exposure” to EMPG. However, the spokesperson did not comment on whether it has exposure to individuals that have exposure to EMPG.
Interviewed on Irish State broadcaster, RTE
RTE
RTÉ is the abbreviation for Raidió Teilifís Éireann, the public broadcasting service of the Republic of Ireland.RTE may also refer to:* Recep Tayyip Erdoğan, 25th Prime Minister of Turkey...
, Barry O'Callaghan
Barry O'Callaghan
Barry O'Callaghan is an Irish businessman, Chairman and CEO of Houghton Mifflin Harcourt , and the Chairman of Education Media and Publishing Group , the Cayman Island holding company for Houghton Mifflin Harcourt....
, Chairman on EMPG and CEO of Houghton Mifflin Harcourt, confirmed that irish investors as well as he himself were facing huge losses. He stated that "no-one has lost more than me". According to the Irish Independent, Barry O'Callaghan is a large personal customer of Anglo Irish Bank. The article stated that Barry O'Callaghan may be forced to step down once the restructuring package was agreed. This contrasted with his interview with the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
where he insisted that he would continue to run the business.
Recapitalization and Restructuring
On 22 February 2010, Houghton Mifflin Harcourt announced that EMPG and HMH had reached an agreement to restructure the finances of the company and recapitalise its balance sheet with a substantial fresh cash investment by institutional investors.The agreement, supported by 100% of HMH's creditors, closed on 9 March 2010. Highlights of the agreement included a reduction in the senior debt to $3 billion from the current $5 billion, with new equity issued to the senior debt holders (including Paulson & Co., Guggenheim Partners), conversion of the $2 billion mezzanine debt into equity and warrant, receipt of $650m of new cash from the sale of new equity. In addition to the key highlights, HMH formed a new $100m Innovation Fund to invest in the next generation of technology for the education industry.
According to the Irish Times the investments by the current equity holders of EMPG, including HMH's CEO, Barry O'Callaghan
Barry O'Callaghan
Barry O'Callaghan is an Irish businessman, Chairman and CEO of Houghton Mifflin Harcourt , and the Chairman of Education Media and Publishing Group , the Cayman Island holding company for Houghton Mifflin Harcourt....
, private clients of Davy Stockbrokers
Davy Stockbrokers
Davy is Ireland's largest stockbroker, wealth manager and financial advisor and has offices in Dublin, Belfast, Cork, Galway and London. Davy offer a range of services to private clients, small businesses, corporations and institutional investors....
, Reed Elsevier, Istithmar and others, would see their investment of over $3.5 billion written down to zero. Following the restructuring, the investors of EMPG retained a nominal investment in Houghton Mifflin Harcourt via warrants over 5% of the company if it exceeded the $10 billion valuation placed on the company at the time of the merger between Houghton Mifflin Riverdeep and Harcourt. In addition to the warrants in HMH, the EMPG shareholders continue to own a stake in the international investment vehicle, EMPGI
EMPGI
Education Media and Publishing Group International, more commonly known as EMPGI, is an education company with operations in China, India, Saudi Arabia, and Libya...
which has stakes in China, the Middle East and elsewhere.
After the recapitalization, both the CEO, Barry O'Callaghan
Barry O'Callaghan
Barry O'Callaghan is an Irish businessman, Chairman and CEO of Houghton Mifflin Harcourt , and the Chairman of Education Media and Publishing Group , the Cayman Island holding company for Houghton Mifflin Harcourt....
and the CFO, Michael Muldowney, remained in their roles. A new nine-member board was created with the CEO the only executive representative, one independent, two representative of Paulson & Co.
Paulson & Co.
Paulson & Co. Inc. is a hedge fund sponsor owned by its employees and founded in 1994 by John Paulson.-Overview:Paulson & Co. Inc. is an employee-owned, hedge fund headquartered in New York, New York...
, and one director from each of Apollo Management, BlackRock
BlackRock
BlackRock, Inc. is an American multinational investment management corporation and the world's largest asset manager. BlackRock is headquartered in Manhattan, New York City, New York, United States and is the leading provider of investment, advisory, and risk management solutions...
, Guggenheim Partners
Guggenheim Partners
Guggenheim Partners, LLC is a privately held, diversified financial services firm that engages in investment banking, capital markets services, investment management, and investment advisory. The firm is headquartered in Chicago and New York with over 1,400 professionals located in 20 cities...
, Fidelity Investments
Fidelity Investments
FMR LLC or Fidelity Investments is an American multinational financial services corporation one of the largest mutual fund and financial services groups in the world. It was founded in 1946 and serves North American investors. Fidelity Ventures is its venture capital arm...
, and Avenue Capital.
On 10 March 2010, Houghton Mifflin Harcourt announced that it had completed its re-capitalization. In addition to a new investment of $ 650 million of equity, the debt levels of the company were reduced by approximately 60% and the annual interest payments by over 75%. According the Irish State Broadcaster, RTE
RTE
RTÉ is the abbreviation for Raidió Teilifís Éireann, the public broadcasting service of the Republic of Ireland.RTE may also refer to:* Recep Tayyip Erdoğan, 25th Prime Minister of Turkey...
, the old equity investors based in Ireland has lost all their investment. The Irish Independent
Irish Independent
The Irish Independent is Ireland's largest-selling daily newspaper that is published in both compact and broadsheet formats. It is the flagship publication of Independent News & Media.-History:...
reported that the old shareholders were denied a shareholders meeting to vote on discuss the restructuring. The former shareholders have been left with warrants over 5% of the company, in the case its value recovers to previous levels.
HMH's Competitors
The now named Houghton Mifflin Harcourt alongside Pearson EducationPearson Education
Pearson Education is an international educational publishing and technology company providing textbooks and other educational material, such as multimedia learning tools...
and McGraw-Hill
McGraw-Hill
The McGraw-Hill Companies, Inc., is a publicly traded corporation headquartered in Rockefeller Center in New York City. Its primary areas of business are financial, education, publishing, broadcasting, and business services...
Cos. Inc. are the leading publishers in the global education market.