April 24, 2015 / 10:58 AM / 5 years ago

Scholastic to sell EdTech business to Houghton Mifflin

(Reuters) - Scholastic Corp (SCHL.O) said it would sell its educational technology and services business to publisher Houghton Mifflin Harcourt Co (HMHC.O) for $575 million in cash, as it focuses on its core children’s book publishing business.

Scholastic, publisher of the “Harry Potter” series in the United States, has also benefited from the popularity of Minecraft Handbook series and cartoonist Raina Telgemeier’s titles “Sisters”, “Drama” and “Smile”.

These titles drove a 7 percent rise in revenue in its key children’s book publishing and distribution business last quarter.

Sales in the EdTech business, which accounts for about 14 percent of Scholastic’s overall sales, rose 9 percent to $249 million in the year ended May 2014.

The business includes production and distribution of curriculum-based learning technology and materials for grades pre-kindergarten to 12 in the United States.

Scholastic said on Friday it expects to invest the sale proceeds - of about $360 million to $370 million - in its three other businesses, including children’s book publishing and distribution.

The transaction is expected to add to Houghton Mifflin’s net income and free cash flow in 2016 and save $10 million to $20 million annually, the company said.

The deal is expected to close in the second calendar quarter of 2015.

Houghton Mifflin said it boosted its existing share buyback program by $100 million to $200 million.

Greenhill & Co acted as financial adviser to Scholastic on the deal. Morgan Stanley served as an adviser to Houghton Mifflin.

Paul, Weiss, Rifkind, Wharton & Garrison LLP and Milbank, Tweed, Hadley & McCloy were the legal advisers to Houghton Mifflin.

Reporting by Devika Krishna Kumar and Anya George Tharakan in Bengaluru; Editing by Sriraj Kalluvila

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