Education Media and Publishing Group, more commonly known as EMPG, is a holding company registered in the Cayman Islands with no operating subsidiaries. It also has a minority interest in an affiliate that focuses on markets outside the US called EMPGI. It was the effective successor to the Ireland-based Riverdeep company. It collapsed during the post-2008 Irish economic downturn following the financial crisis of 2007–2008. Prior to March 2010, EMPG owned the legacy Riverdeep and Houghton Mifflin Harcourt businesses, which it acquired in 2006 and 2007, respectively.
Riverdeep's acquisition of Houghton Mifflin
On 22 December 2006, it was announced that Riverdeep PLC had completed its acquisition of Houghton Mifflin. The new joint enterprise would be called the Houghton Mifflin Riverdeep Group plc, a company based in Ireland. Riverdeep paid $1.75 billion in cash for the equity owed the private investment firms Thomas H. Lee Partners, Bain Capital and The Blackstone Group and assumed $1.61 billion in debt. Tony Lucki, a former non-executive director of Riverdeep, remained in his position as Houghton Mifflin's chief executive officer.
The merger with Harcourt and founding of EMPG
On 16 July 2007 Houghton Mifflin Riverdeep announced that it signed a definitive agreement to acquire the Harcourt Education, Harcourt Trade and Greenwood-Heinemann divisions of Reed Elsevier for $4 billion. The expanded company would become Houghton Mifflin Harcourt. The holding company structure of Houghton Mifflin Riverdeep plc was re-organised with a new holding company based in the Cayman Islands. This company was called Education Media and Publishing Group, EMPG for short.
At the time of the formation of HMH Lucki said "Together, we will be better positioned to meet the changing needs of educators and students in a wider range of subjects, states and school districts".
On 27 November 2008, President Jeremy Dickens told the New York Times that the company had $7bn of debt, which cost the company $500m per annum to service. The money to fund the 2006 Houghton Mifflin and 2007 Reed Elsevier acquisitions was borrowed, and in retrospect Education Media and Publishing Group (Riverdeep) probably overpaid for both companies.
In May 2008, Cengage Learning (formerly Thomson Learning) acquired the assets of the Houghton Mifflin College Division for $750 million.
The combined business was led by Tony Lucki, who had more than thirty years of publishing experience, until his replacement in April 2009 by Barry O'Callaghan.
Financial reorganization
Downgrades in January 2009
In January 2009 the two big credit rating services, Moody's Investor Services and Standard & Poor's, reduced the rating of EMPG and warned that default on its debt was increasingly likely. On 10 April 2009 Moody's downgraded Houghton Mifflin Harcourt down to Caa3 from Caa1. In August 2009, EMPG announced that it had substantially reduced its debt, relaxed covenants and received incremental working capital facilities.
In January 2009, Reed Elsevier dropped its valuation of their 11.8% stake in EMPG to just €15m. This values the group at around 5% of its original claimed worth, leaving Chairman Barry O'Callaghan with few options now that S&P rates the group CCC.
Restructuring in August 2009
On 27 July 2009, the Irish Independent newspaper reported that EMPG was in the process of a re-structuring negotiations with its unsecured-debt holders that would lead to the conversion of the debt into equity. The news story reported that the unsecured debt holders would receive a 45% equity stake. Dubai's royal family to buy up stake in EMPG. The article estimates that post deal, EMPG would cut its debt from $7.3bn to $6.1bn. On 15 August 2009, the Financial Times newspaper reported in an interview with Houghton Mifflin Harcourt's CEO, Barry O'Callaghan, that the refinancing had received approval of more than 90% of lenders. The terms included the holding company debt converting into 45% of the fully diluted common equity, an effective 25 per cent relaxation of financial covenants, second lien lenders agreeing to convert their holdings into a PIK instrument, reducing annual interest costs by $100m, and a further $50m increase its working capital facility. Following the announcement of the debt restructuring, the President of EMPG, Jeremy Dickens, previously a lawyer at Weil, Gotshal & Manges, stepped down as President of EMPG.