McGraw-Hill said Monday that it reached a deal to sell its education arm to private equity firm Apollo Global Management LLC for $2.5 billion in cash and debt, as part of its plan to focus on its financial information businesses.

Share story

McGraw-Hill said Monday that it reached a deal to sell its education arm to private equity firm Apollo Global Management LLC for $2.5 billion in cash and debt, as part of its plan to focus on its financial information businesses.

As part of the deal, McGraw-Hill will receive $250 million in Apollo debt with an annual interest rate of 8.5 percent. The acquisition includes the New York-based company’s digital and traditional textbook business and other assets.

The sale is expected to close in late 2012 or early 2013. At that time, The New York-based McGraw-Hill Cos. will be renamed McGraw Hill Financial. Harold McGraw III, McGraw-Hill’s current chairman, president and CEO, will head that company.

McGraw Hill Financial expects 2012 revenue of about $4.4 billion. It plans to provide 2013 financial guidance when it announces its 2012 fourth quarter and year-end financial results.

Unlimited Digital Access. $1 for 4 weeks.

Harold McGraw said the sale will boost value for the company’s shareholders, give the company added financial flexibility and allow it to focus on growing brands like Standard & Poor’s, S&P Capital IQ, Platts and J.D. Power and Associates.

The company said it plans to use the proceeds from the sale, estimated at $1.9 billion, to fund its stock buyback program, make acquisitions and pay off debt.

Starting in the fourth quarter, McGraw-Hill will classify the education business as discontinued operations. It expects to take a non-cash impairment charge in the fourth quarter of about $450 million to $550 million related to the division.

McGraw-Hill first announced plans to split into two companies in September 2011 through either the sale or the spin-off of the education arm. Earlier this month, the company reported a 14 percent drop in third-quarter net income, partially as a result of the planned split.

McGraw-Hill shares rose 20 cents to close at $51.89 Monday, off its session high of $53.60. Shares of New York-based Apollo fell 6 cents to $15.27, regaining most of its earlier drop to $15.12.

Custom-curated news highlights, delivered weekday mornings.