Houghton Mifflin Harcourt to Acquire Scholastic’s Educational Technology and Services Business for $575 Million

BOSTON - Global learning company Houghton Mifflin Harcourt (NASDAQ: HMHC) (HMH) announced today that it has entered into a definitive agreement to acquire the Educational Technology and Services ("EdTech") business of Scholastic Corporation for $575 million in cash, subject to customary working capital adjustments.

The acquisition would provide HMH with a leading position in intervention curriculum and services and extend its product offerings in key growth areas, including educational technology, early learning, and education services, creating a more comprehensive offering for students, teachers and schools. The transaction is expected to be accretive to HMH net income and free cash flow in 2016 and to yield synergies in 2016 and beyond with annual cost savings of $10 to $20 million. The transaction is expected to close in the second calendar quarter of 2015, subject to closing conditions and regulatory approval.

The transaction would provide added digital infrastructure and expertise to support the continued development of next-generation products for HMH's pre-K-12 and consumer businesses. In addition, HMH believes that combining EdTech's digital intervention solutions sales expertise with HMH's already strong sales organization will create new opportunities and accelerate the Company's growth.

"As HMH drives a learning transformation powered by technology, we believe the EdTech segment of Scholastic will strengthen our offering in both K-12 and other key growth areas, including digital intervention, early learning, consumer and professional development," commented Linda K. Zecher, HMH's President and Chief Executive Officer. "We believe that by diversifying our education portfolio, we will be taking an important step toward optimizing our growth while also enhancing our resiliency throughout economic and market cycles."

The EdTech segment of Scholastic provides digital intervention curriculum, products and services to schools and districts throughout the United States as well as related implementation and assessment services and school consulting services. The business consists of proven-effective intervention solutions, including READ 180®, the largest individual digital curriculum program in the marketplace, and MATH 180®, which is fast becoming a market leader since its introduction in 2014. HMH expects this transaction would enable the company to more comprehensively address upcoming K-12 adoptions and the needs of students in those markets who would benefit from an intervention solution.

The management team of the EdTech business, including its President Margery Mayer, is expected to remain with the business as part of HMH. The business' approximate 800 employees are also expected to join HMH upon transaction close.

Financial Overview:
The acquisition is aligned with the Company's capital allocation framework and is expected to enhance HMH's financial profile.

Eric Shuman, HMH's Chief Financial Officer, said, "The highly-compelling strategic rationale coupled with opportunities for collaboration and coordination on the sales front makes this an attractive acquisition. In line with our capital allocation framework, we view this transaction as a prudent use of our strong cash position and balance sheet and believe that it will help enhance stockholder value over the long term."

For the fiscal year ended May 31, 2014, the EdTech segment of Scholastic delivered net sales of $249 million, up $21 million or 9% compared to fiscal 2013. In the same period, operating income grew $10 million or 34% from the prior year period to $40 million. Adjusted EBITDA and free cash flow for the EdTech segment were $68 million and $37 million respectively for the same period, up $16 million and $25 million respectively, from the same prior period.

In connection with this transaction, HMH expects to replace its existing $180 million term loan with a new $500 million committed term loan with a six year maturity.

Capital Allocation and Share Repurchase Program:
In addition, consistent with the Company's goal to create long-term stockholder value, HMH"s Board of Directors has authorized an additional $100 million under the Company's existing share repurchase program, bringing the total authorization to $200 million. This aligns with HMH's broader capital allocation strategy, which focuses on driving organic growth, pursuing strategic acquisition opportunities and returning capital to stockholders, when appropriate.

The share repurchase program may be executed over a period of two years from the program's original authorization. Repurchases under the program may be made from time to time in open market or privately negotiated transactions. The extent and timing of any such repurchases would be at the Company's discretion, unless made through pre-arranged trading plans, and subject to market conditions, applicable legal requirements and other considerations.

The Board will continue to actively consider ways to pursue opportunities that are consistent with the Company's capital allocation strategy that the Board deems prudent and appropriate under the circumstances.

Investor Conference Call/Webcast:
At 8:30 a.m. ET on April 24, 2015, HMH will host a conference call to discuss the transaction. The call will be webcast live at ir.hmhco.com. The following information is provided for investors who would like to participate:
Toll Free: (844) 835-6565
International: (484) 653-6719
Conference ID: 33657634
Webcast Link: http://edge.media-server.com/m/p/x5nwqigp

An archived webcast with the accompanying slides will be available at ir.hmhco.com for one year for those unable to participate in the live event. An audio replay of this conference will also be available until May 1, 2015 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using conference ID 33657634.