Standard & Poor's has had a few hiccups recently, locking themselves into pointlessly downgrading U.S. Treasuries, pissing off Jean-Claude Trichet, and blowing up the CMBS market revival because they realized too late that they'd forgotten to carry a two.
But Jana Partners and Ontario Teachers' think of these things not as problems but as opportunities for growth. Or, at least, they seem to think that future growth is going to come less from teaching children how to read and do math, and more from rating sovereign bonds issued by children who can't read or do math.
Two big investors have upped their stake in McGraw-Hill Cos. in a move that could lead to a push to break up the conglomerate, known as much for its financial data and bond ratings as its textbooks for school kids.
Hedge fund Jana Partners LLC and the Ontario Teachers' Pension Plan on Monday reported increasing their joint stake in the company to 5.2%. People familiar with the matter say the investors may want to see a the company separate its lucrative ratings business, Standard & Poor's, from its ailing textbooks business
McGraw-Hill may have already been on that path, having announced on June 14 that was looking to divest its broadcasting business as part of "a continuing portfolio review that McGraw-Hill is undertaking across the enterprise to reevaluate its strategic core and ensure it is appropriately allocating capital to generate shareholder value," and having said on last week's earnings call that they expected "to be making some pretty significant action statements" in the second half of 2011. And the company reacted to Jana's and Ontario Teachers' filing today with a press release reiterating its self-help efforts.
At the time of the June 14 portfolio review announcement, JPMorgan's analyst said "We're pleased with the announcement, but a bit puzzled why it wasn’t disclosed earlier in the year (when it began)." Jana and Ontario Teachers' may have figured out the good news before JPMorgan did, since they did most of their buying during the first half of the year, having accumulated almost 9 million shares by March 31 (see 13-Fs here, here). They currently own 15.7 million shares, or 5.2% of McGraw-Hill; only about 1.8 million were bought since June 14 (see 13Ds here, here).
Also: Activist Investor Takes Stake in McGraw-Hill [DealBook]