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On paper, the merger began last May, when Pearson PLC, owner of the Addison Wesley Longman educational publishing group and imprints such as Scott Foresman, announced its acquisition of Viacom's Simon & Schuster education division, which includes textbook giant Prentice Hall, Allyn & Bacon, and Modern Curriculum Press. Pearson's plan was to consolidate its holdings into a new global unit, expected to be the largest educational publishing operation in the world. As part of the deal, Pearson was to purchase Simon & Schuster's professional, technical, and reference (PTR) lines and then immediately resell them, for $1-billion (U.S.), to a Texas-based investment firm, Hicks Muse Tate & Furst. In 1997, the PTR divisions generated approximately $1.9-billion (U.S.) in sales, and earnings of $246-million. Almost half of the revenues come from the computer publishing operations of Macmillan U.S. Addison Wesley Longman, by contrast, had 1997 sales of $924-million (U.S.), with earnings of $116-million.
Now, with these divisions under one corporate roof internationally, senior managers at Addison Wesley Longman Canada and Prentice Hall Canada will be reviewing overlaps between their own domestic education programs. As far as the organizations themselves are concerned, attrition is all but inevitable as the parent company seeks to find savings by combining the two firms. On the school and college side, the merged firm will have about 40% market share, says Gage Educational president Chris Besse, who heads the school subcommittee of the Association of Canadian Publishers. Prentice Hall and Addison Wesley Longman dominate the French-as-a-second language and elementary math markets, while Prentice Hall's strong language arts programs complement the Addison Wesley Longman roster, which didn't do much publishing in that area. On the trade side, less consolidation will be required because Addison Wesley Longman last year disbanded its trade publishing program.
A MARKETING EXECUTIVE with a major educational publisher recounts a chance meeting with two colleagues at a social function over the holidays. One was from Prentice Hall Canada, the other, Addison Wesley Longman Canada. While the two managers now technically work for the same organization - the vast Pearson group, which last year struck a deal with Viacom to buy Simon & Schuster's education division - both reported that they had no idea how the merger was going to shake out in Canada. The reason? Investment Canada is still reviewing the file, and federal officials are hinting broadly that they're in no hurry to release a decision. As the executive observed, "Who knows what's going to happen?"
Consequently, the 170 employees of Addison Wesley Longman, based in Don Mills, Ontario, and the 330 employees of Prentice Hall Canada, located a few kilometres to the east in Scarborough, remain in an uncertain limbo as the wheels of public policy grind on. "Not much is happening," says Anthony Vander Woude, chief executive officer at Addison Wesley. "That's the story for now."
The Addison Wesley/Prentice Hall merger is the other big marriage taking place in the book industry these days, although it has tended to garner less attention than Bertelsmann's 1998 acquisition of Random House, a move that has created a true megaplayer on the trade side. The Pearson deal, however, has comparable consequences, and points to a significant increase in concentration among educational publishers, not just in Canada but around the world.
GLOBAL BEHEMOTH
On paper, the merger began last May, when Pearson PLC, owner of the Addison Wesley Longman educational publishing group and imprints such as Scott Foresman, announced its acquisition of Viacom's Simon & Schuster education division, which includes textbook giant Prentice Hall, Allyn & Bacon, and Modern Curriculum Press. Pearson's plan was to consolidate its holdings into a new global unit, expected to be the largest educational publishing operation in the world. As part of the deal, Pearson was to purchase Simon & Schuster's professional, technical, and reference (PTR) lines and then immediately resell them, for $1-billion (U.S.), to a Texas-based investment firm, Hicks Muse Tate & Furst. In 1997, the PTR divisions generated approximately $1.9-billion (U.S.) in sales, and earnings of $246-million. Almost half of the revenues come from the computer publishing operations of Macmillan U.S. Addison Wesley Longman, by contrast, had 1997 sales of $924-million (U.S.), with earnings of $116-million.
As for the Canadian subsidiaries, Prentice Hall's school division is about the same size as Addison Wesley Longman's, and its college unit does about twice as much business. Prentice Hall's PTR group, however, is approximately six times larger than Addison Wesley's, according to industry sources - mainly due to sales of Macmillan computer titles. In that market, Addison Wesley Longman's offerings are limited mainly to two imprints: Peachpit Press, computer manuals for Mac users, and WROX, a high-end technical series.
HICKS DEAL OFF
According to published reports, the Hicks Muse end of the deal began to unravel last fall. Then, in late November, officials with the U.S. Department of Justice reviewing the market share implications of the merger ordered Pearson to sell off 55 of Simon & Schuster's 35,000 higher education titles, as well as a new elementary science series, which overlaps with a similar product being brought out by Addison Wesley Longman. The annual revenue generated by these lines is estimated to be about $3.5-million (U.S.), or 2% of total estimated sales of Pearson's combined education divisions. At precisely the same time, Pearson announced that the deal with Hicks Muse had been officially terminated. The result is that Pearson becomes the new owner of Simon & Schuster's PTR publishing operations, although one industry source speculates that the British giant may well continue to try to spin off these divisions.
What about the implications for the Canadian market? When Hicks Muse was still part of the deal, the merger would have resulted in less concentration than under the current configuration. With respect to Canada, it isn't clear who would have acted as the local distributor for Simon & Schuster's spun-off PTR lines. It is conceivable, however, that Ottawa could have intervened in a limited way, requiring, for example, that these agency lines be directed away from Pearson's Canadian holdings.
Now, with these divisions under one corporate roof internationally, senior managers at Addison Wesley Longman Canada and Prentice Hall Canada will be reviewing overlaps between their own domestic education programs. As far as the organizations themselves are concerned, attrition is all but inevitable as the parent company seeks to find savings by combining the two firms. On the school and college side, the merged firm will have about 40% market share, says Gage Educational president Chris Besse, who heads the school subcommittee of the Association of Canadian Publishers. Prentice Hall and Addison Wesley Longman dominate the French-as-a-second language and elementary math markets, while Prentice Hall's strong language arts programs complement the Addison Wesley Longman roster, which didn't do much publishing in that area. On the trade side, less consolidation will be required because Addison Wesley Longman last year disbanded its trade publishing program.
For publishers like Besse, the merger raises concerns that an amalgamated Prentice Hall/Addison Wesley Longman will be tough to compete with, given the size of their combined marketing budgets and the various opportunities available to share series development costs with Pearson's U.S. divisions. "It's obviously a concern because they'll be big," says Besse.
For its part, Ottawa faces a stark policy decision: sign off on the merger as approved by the two giants last November, or oppose it on the grounds that it fails the net benefit test because Pearson comes away with too much of the pie. Investment Canada's Peter Caskey confirms that the government has already exercised its legal option to extend the review into early spring, and explains that Ottawa "has to take its cue" from developments in the international deal - the U.S. Department of Justice ruling and the demise of the Hicks Muse spin-off agreement.
If Ottawa does give the go-ahead (as seems likely, given the recent history of Investment Canada's decisions), the educational end of the industry will be dominated by three giants - McGraw-Hill Ryerson, ITP Nelson, and the newly merged Pearson group - followed by a second tier of mid-size houses, including Scholastic, Wiley, Gage, and Oxford, as well as a number of small niche players. "In the last five or 10 years, you're getting real concentration in a relatively few firms," says Scholastic Canada president Larry Muller, who chairs the Canadian Publishing Council's education group. Over the past three years alone, he adds, the number of members of this committee has shrunk from 16 to a dramatically lower level: six.
Copyright Quill and Quire Feb 1999