NEC Agrees to Acquisition by Harcourt

National Education Corp., which became a coveted prize after undergoing a dramatic turnaround in the past year, has agreed to be acquired by publisher Harcourt General Inc. for $21 a share, or $811.6 million.

If the buyout is completed, NEC’s corporate headquarters in Irvine would be closed and up to 40 employees now based there would lose their jobs. Harcourt said it would move quickly to consolidate the administrative operations of NEC into its Chestnut Hill, Mass. headquarters.

However, Harcourt plans to keep largely intact NEC’s remaining operations, which include the Steck-Vaughn Publishing school supplement division in Texas, the National Education Training Group computer training business in Illinois and its ICS Learning Systems correspondence school unit in Pennsylvania.

Harcourt portrayed the intended union as a marriage of complimentary businesses that would benefit its book and retailing empire.

“NEC’s diverse mix of educational products and services and distribution channels fit extremely well with our existing publishing businesses, and will help accelerate our long-term growth in the dynamic market for broad-based education services,” said Harcourt Chief Executive Richard A. Smith.

More than two years ago, Harcourt considered buying NEC, but decided it was too troubled. It lost a cumulative $160 million in the three-year period ending in 1995. Its computer-based training division was bleeding the company dry, and other divisions needed help too.

But after Harcourt walked away, NEC directors changed management, bringing in Chief Executive Sam Yau in May 1995.

Yau, 48, refocused each division, and the company earned $21.4 million on revenue of $288.8 million last year.

“We saw that NEC had come a long way toward fixing itself,” Harcourt spokesman Peter Farwell said. “Sam’s come in and done a great job in turning them around, though the turnaround is not complete.”

Yau, who plans to leave the company after a short transition, said he was “impressed with the level of commitment and level of investment that Harcourt General was willing to make.”

While Harcourt’s deep pockets are important, Yau said the biggest factor weighing in the publisher’s favor was its embrace of his vision of “lifelong learning.”

The deal with Harcourt eclipses an all-stock buyout agreement that Irvine-based NEC entered in March with Sylvan Learning Systems Inc., a Baltimore-based operator of learning centers for children. Based on Sylvan’s closing stock price of $33.625 a share on Tuesday, that deal would have been worth about $750 million.

Shortly after NEC announced its agreement with Sylvan, Harcourt launched a $19.50-a-share tender offer. Earlier this month, it sweetened the bid to $21 a share, leaving little doubt in the minds of analysts who the ultimate purchaser of NEC would be.

NEC’s stock rose 25 cents a share to close at $20.75 in New York Stock Exchange trading Tuesday. Harcourt’s stock fell 25 cents to close at $46.875 in Big Board trading.

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Analysts praised the deal, saying it would give Harcourt a much-needed edge in the cutthroat publishing world, while NEC would benefit from the larger company’s financial resources and brand cachet.

“It’s one of those infrequent deals that works out creating current value for NEC shareholders, and at a reasonable price creating opportunity for long-term value for Harcourt shareholders,” said analyst Lanny Baker at Salomon Bros.

Harcourt also said it would pay the $30 million “breakup” fee owed to Sylvan for the cancellation of the earlier deal with NEC.

With fiscal 1996 revenue of $3.29 billion, Harcourt is one of the giants of the publishing world with its Harcourt Brace book unit. It also owns majority stakes in the Neiman Marcus and Bergdorf Goodman department store chains.

Analysts disagreed over who was getting the better end of the deal. Some said that Harcourt was paying a hefty price for a company that has yet to prove its turnaround has staying power.

However, analyst Michael T. Moe at Montgomery Securities said “it’s hard to be overjoyed” about the price given his belief that NEC’s stock would have surpassed $25 a share on its own within a year.

Still, he didn’t quibble with the opportunity that Harcourt brings to the table. “Harcourt is a first-rate partner to help the company go to the next level.”

The deal also comes at the right time for NEC, said analyst Ivan Obolensky at Shields & Co. Though the company had achieved an impressive resurgence, it was faced with a possible shortage of cash in a business that requires a constant inflow of dollars. “You need big bucks, big power and the capability to stay,” he said.

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Harcourt, which began as a movie theater chain in the 1920s, has owned businesses as diverse as cola bottling and insurance. It acquired then-troubled Harcourt Brace Jovanovich in 1991 for $1.5 billion, and restored the publisher to health.

Though Harcourt already has a strong presence in textbooks and professional materials, it’s been duking it out with other publishers such as Houghton Mifflin and Scholastic. While the NEC acquisition is expected to cut into Harcourt’s earnings in the short term, it will give Harcourt a big wedge in hot markets such as computer training, a $1.5-billion industry that’s growing by 35% a year.

NEC also provides Harcourt with new avenues for selling its high-brow content, and the ability to move quickly and inexpensively with soft-cover teaching books and electronic products.

Harcourt has started what the industry now calls a distance learning business--essentially correspondence education. But NEC’s ICS Learning Systems is the biggest, controlling half the market. No other company comes close.

Harcourt also has a company that tests students and issues certifications and other credentials needed for various jobs or promotions. NEC had been using Sylvan for such testing.

There are a few risks for Harcourt, said analyst Peter Appert at Alex Brown, particularly because NEC has been in a turnaround mode for the past couple of years. “There are bound to be some glitches in the integration of these businesses,” he said.

The merger could be completed quickly. If 90% of NEC’s shares are tendered by the May 27 deadline, the deal would probably close a few days later. Harcourt could extend the deadline, but even if the 90% threshold isn’t reached, it would likely mean a delay of no more than about a month while the companies plan a shareholders meeting to vote on the deal.

Times staff writer James S. Granelli contributed to this story.