Closely held McGraw-Hill Education and Cengage Learning Holdings II will merge in an all-stock deal, creating the second-largest educational publisher in the U.S..
The former rivals call it a merger of equals, in which existing holders of Cengage and McGraw-Hill (one of the "big three" educational publishers, along with Pearson and Houghton Mifflin) will each retain 50% of the new company.
The merged company, to be named McGraw Hill, is valued at about $5 billion based on its public peers, with $3.16 billion projected in annual revenue. The new McGraw Hill should bring "$300 million of cost savings over the next three years; savings to be used to expand digital offerings and cut prices," the companies said, The Wall Street Journal reported.
The new McGraw Hill will be led by Cengage's CEO Michael Hansen, and boasts a combined total of 44,000 textbook titles. Current McGraw-Hill CEO Nana Banerjee will leave after the transition, the companies said.
Should the deal get regulatory approval, the college textbooks and higher-education-materials publisher will compete with industry leading, London-based Pearson (PSO) , bringing pricing pressures to the U.S. higher-education publishing market, analysts expect.
Pearson shares were down 2.41% to 810.20 pence in London trading Wednesday.