McGraw-Hill's Slide Into a Possible Break-Up From Outside

I read with interest the recent headlines that two investment funds have bought comparatively large stakes in McGraw-Hill with the aim of forcing it to break the firm up. It couldn't happen to a nicer plutocratic empire.

I've written several prior posts concerning the firm here. I recalled that I wrote this piece, noting the brief inclusion of the firm in my equity portfolio, but not that it was almost five years ago.

The intervening years have not been good to or at the firm. Thanks to Terry McGraw trying to pump growth at S&P's ratings unit on the cheap, the firm's fortunes soured in the immediate aftermath of the late-2008 equity markets collapse.

Since then, it's about paced the S&P, but that leaves it with a -20% return over the five year period, while the index has finished flat.

With its largely unrelated ratings, educational and other publishing unit, and equity data subscription business, the firm has been an unwieldy conglomerate for decades. Much like GE, it has long since lost any reason for its integrated nature.

Except, of course, the ability to employ various McGraw family members and fuel their increased wealth.

My own experiences with S&P's equity data unit have exposed that business as poorly run. Customer support from the technical people is superb, but the sales and administration are abysmal, with those employees rarely knowing what's going on with customer accounts.

A few years ago, I mentioned a particularly vexing problem to a senior executive who is also a McGraw family member. There was never a reply, indicating, evidently, a sort of supreme disconnect between the family member employees and the real operations of the firm.

It doesn't surprise me that some outsiders have detected an opportunity to buy the firm's shares now, at what they believe to be a lower value than that of the pieces of the firm, once separated. Nor does it surprise me that Terry McGraw issued a typical corporate-speak response.

But, again, like GE, non-performance is a tough sell. GE has finally begun to unravel, with the entertainment properties that Jack Welch mistakenly acquired having been sold to Comcast.

For McGraw-Hill, it's not a stretch to see the publishing pieces sold to larger competitors, or just split off, while the ratings and financial data units also go their separate ways. Leaving, I suppose, the McGraws to count their money as they gather in either the compound up in Connecticut or their place in the Adirondacks.

Like many companies long-identified with a family still involved in the firm, McGraw-Hill looks like it may be at that point where saner, smarter heads prevail and relieve the family members from making more management mistakes.