Macmillan Splits in 2, Plans Payout to Foil Bass Group
Macmillan Inc. announced a major restructuring Tuesday that would divide the nation’s third-largest textbook publisher into two corporations and pay out $1.36 billion to shareholders in an effort to ward off a $1.6-billion acquisition offer from Robert M. Bass Group of Texas.
Macmillan said in a statement announcing the terms of the reorganization that its board had adopted the plan to split the company into two publicly held entities, which will be traded separately on stock exchanges. Senior management will remain in their current positions.
One company, Macmillan Publishing Co., will include its traditional publishing businesses. The second company, Macmillan Information Co., will be “spun off” as a dividend to shareholders and will handle the non-publishing activities, such as the information services, instruction and retail businesses currently owned by Macmillan Inc. For example, the company owns the Berlitz language schools and the Katharine Gibbs secretarial schools.
The $1.36-billion payment will be composed of a special cash dividend valued at $52.35 for each of the company’s 26.011 million shares, with $25.20 a share to be paid by Macmillan Publishing Co. and $27.15 by Macmillan Information Co. The dividends are in addition to the company’s previously announced regular quarterly dividend of 20 cents per share.
Shareholders will also get stock and bonds in the new information company while keeping their shares in the renamed Macmillan Publishing Co. Shareholders will get half a share of Macmillan Information common stock and $4.50 principal amount of Macmillan Information debt securities. These subordinated debentures will bear interest at 15% and mature in 2008.
Macmillan said it had obtained the necessary commitments for financing. The cash dividends will be funded by loans from Citibank, Morgan Guaranty Trust and the Toronto-Dominion Bank, which have committed $1.2 billion. The remaining funds will be provided by First Boston Corp., which commited $375 million in short-term “bridge” financing.
The Bass Group had offered to pay $64 a share, or about $1.6 billion, for Macmillan on May 17. However, Macmillan Chairman Edward P. Evans told shareholders at the annual meeting on May 18 that the company was not for sale. Tuesday’s statement called the Bass offer “inadequate” and said the new restructuring plan is worth more than $64 a share.
Value Disputed
Analysts, however, were divided on the value of the restructuring deal.
Bruce Thorp, media analyst at Provident National Bank in Philadelphia, placed the value at $65 to $70 a share, which is “still well below the theoretical full value for the company” and which Thorp puts at $85 a share.
However, Thorp said that “unless somebody from the outside comes along and is willing to work against the management, I think it may be the best offer they can get.”
J. Kendrick Noble Jr., a media analyst for Paine Webber, said the preliminary estimates of the deal’s value range from $70 to $75 a share, which he considered “reasonable” although a little short of his valuation of about $75 a share.
Noble also said he thought the Bass offer was intended “to put the stock in play” and doubted that Bass would make any attempt to up his original ante. Bass was quoted by Reuters as saying he had no comment on the proposed restructuring.
Macmillan’s stock had risen substantially on speculation after the Bass offer, but it closed Tuesday at $70.25 a share, down $2.25, in composite trading on the New York Stock Exchange. The stock was the sixth most active on the NYSE, with about 1.66 million shares changing hands.
‘Complicated Offer’
“The market is telling us they are not real impressed by the deal,” said Bruce Benteman, a research analyst at Wealth Monitors, an investment newsletter in Kansas City, Mo. “It’s easy to put a value on the Bass offer at $64 a share. You can’t put a value on this deal. When you put out an offer that has cash, stock and debentures, it’s hard to put a value on that, and investors don’t like that.”
“The offer is a little more complicated than I had hoped,” Thorp said. “It’s disappointing compared to the rumors that were circulating. I think that’s why the stock was down today.”
Thorp said the company was rumored Friday to be working out an offer that would be in the range of $80 a share, which he said might still “materialize, but not from management unless there is some prodding from a third party.”
Macmillan’s publishing operations last year generated $469.4 in revenue, while its information businesses brought in $486.4 million.
