THE WALL STREET
Houghton Shareholder Pushes for Dividend or Share Buyback
Q Investments LP Says
Cash Should Be Returned to Shareholders
Jeffrey A. Trachtenberg
Dec. 11, 2014 6:01
activist investor wants publisher
Houghton Mifflin Harcourt Co. to
further turn the page from its recent bankruptcy and hand back more
cash to shareholders.
Investments LP, which owns about 3% of Houghton’s stock, is seeking a
shareholder vote to pressure the company to either institute a
dividend or boost its share repurchases, according to a letter it
Houghton, which specializes in educational books and digital learning,
has a “fortress balance sheet” that is far too protective in a market
where debt is cheap, Q Investments said. The investor’s push comes as
at least one competitor in educational publishing, Cengage Learning,
turned to the debt markets this week.
spokeswoman for Houghton Mifflin Harcourt declined to comment.
The company, whose primary focus is preschool through 12th grade, also
has a small consumer arm whose authors include Philip Roth, Jonathan
Safran Foer and Yann Martel. Houghton emerged from a brief stay in
bankruptcy in 2012 and went public in 2013 at $12 a share. Its shares
closed Thursday at $20.30, giving the company a market capitalization
of $2.87 billion.
a Nov. 6 earnings conference call, Houghton Chief Financial Officer
Eric Shuman said the company expects to end the year with a cash
balance of between $675 million and $725 million, up from $425 million
at the end of 2013. Houghton’s board authorized the repurchase of $100
million in common stock over a two-year period because of its expected
strong cash position.
an interview last month with The Wall Street Journal, Houghton Chief
Executive Linda Zecher emphasized the importance of delivering value
for shareholders. “You want to make sure you’re focused on growth and
that you’re spending your capital judiciously,” she said. “And you
want to make sure that anything you’re doing will accrue to the stock
price and to the value of the company.”
Houghton has been on something of an acquisition spree. It has
purchased three digital education-related companies in 2014 as it
looks to build its digital portfolio and increase its opportunities
for selling directly to consumers. Ms. Zecher also said Houghton would
be open to a larger deal if it would expand the company’s footprint.
the letter to the board, Q Investments said hoarding cash for a major
acquisition is unnecessary. While the investor said it would support a
deal, if merited, it believes the company should return some of the
cash on hand because the debt markets could finance any significant
Investments didn’t specify how much cash it believes should be
returned to investors, but suggested a dividend could signal that
Houghton has confidence in its long-term prospects. In the letter, the
activist fund voiced support for management and noted the company’s
progress since bankruptcy.
Earlier this week, Cengage, another educational publisher, said it was
planning to use debt to pay a dividend only eight months after it
emerged from bankruptcy.
David Benoit at
email@example.com and Jeffrey
A. Trachtenberg at