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The Globe and Mail

Thomson and rival to buy U.S. publishing giant

In what is being called one of the most important publishing deals of the year, Thomson Corp. and rival Reed Elsevier Plc. have struck a multi-billion deal Friday to buy and split up U.S. Harcourt General Inc.

Under the agreement, Reed Elsevier, based in Britain and the Netherlands, will pay $59 (U.S.) a share for Harcourt for a total of $5.6-billion, including the assumption of $1.2-billion in debt.

The two will then split up Harcourt's four main divisions, with Toronto-based Thomson taking Harcourt's textbook unit and other assets, including the company's corporate and professional services group, for $2.06-billion (U.S.) in cash.

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Reed will keep Harcourt's scientific, medical and technical division and its schools business.

Based in Massachusetts, Harcourt is one of the world's largest education publishers. It had revenues of about $2.1-billion last year. The company put itself up for sale in June following efforts to streamline operations.

Several bidders had shown interest in Harcourt but either faced regulatory problems or only wanted small parts of the business.

According to reports, a consortium comprised of financial buyers Thomas H.Lee Co., Bain Capital Corp., and Blackstone Capital Corp. had been the most serious contenders in the final round of bidding. Dutch publisher Wolters Kluwer and U.S. publisher McGraw-Hill Co. have also said to have been interested in buying Harcourt.

Thomson's chunk of the acquisition will have projected revenues this year of $750-million and an earnings margin before taxes, depreciation and amortization of about 20 per cent. The acquired units, with a total of 4,300 employees, will become part of Thomson's learning market group.

"This acquisition is consistent with Thomson's strategy to be a major player in the global higher education and corporate and professional training markets," Thomson president and chief executive Richard Harrington said in a statement.

The new businesses, he said, will expand Thomson's higher education portfolio and enhance its electronic education business on a global level.

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"Combined with our strong internal growth and strategic acquisitions of Prometric and Wave Technologies earlier this year, this acquisition will transform Thomson Learning into on of Thomson's leading market groups with revenues approaching $1.7-billion," Mr. Harrington said.

Thomson, which has been aggressively pushing into electronic and Internet-based businesses, acquired the Sylvan Prometric division of U.S.-based Sylvan Learning Systems Inc. in January for $775-million. It followed that up in March with the purchase of Wave Technologies International Inc. for about $45-million (U.S.)

Friday's transaction should close in the first quarter on next year. The purchase, Thomson said, will be dilutive to its earnings per share on an annualized basis to the tune of about 12 cents a share for the first year and less so after that. Cash earnings per share will break even in the first hear and accretive after that, it said.

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