WASHINGTON (Reuters) – Cengage and McGraw-Hill, the No. 2 and 3 largest U.S. college textbook companies, terminated their merger agreement on Monday under pressure from U.S. and British antitrust enforcers.
Cengage said the deal, announced in May 2019, was scrapped “by mutual agreement due to a prolonged regulatory review process and the inability to agree to a divestitures package with the U.S. Department of Justice.” McGraw-Hill simply said closing conditions could not be satisfied.
The deal, which would have created a company worth about $5 billion, came at a time when college textbook prices were stable or declining slightly after two decades of rising sharply, according to U.S. government data. McGraw-Hill is owned by Apollo Global Management LLC (APO.N).
Cengage and McGraw-Hill are behind Pearson, the world’s biggest education company, in market share.
A source familiar with the transaction said the Justice Department had demanded “significant divestitures of several dozen courses” to address antitrust concerns.
Britain’s antitrust enforcers, the Competition & Markets Authority, said in a statement that the companies had offered divestitures that were “unlikely to be sufficient in addressing its competition concerns.”
“The COVID-19 crisis has accelerated the need for students to learn wherever they are,” Cengage CEO Michael Hansen said. “On a standalone basis, Cengage is very well-positioned to continue to support the transition to digital.”
The advocacy group U.S. PIRG said it was pleased that the Justice Department did a serious probe of the deal but said the move to digital would not necessarily save students money.
“While Cengage and McGraw-Hill won’t have quite as much power to jack up prices on course materials, the new wave of digital textbook products out there — from access codes to ‘inclusive access’ automatic textbook billing — still make it difficult for students to get good grades, pay the bills, and graduate on time,” said Kaitlyn Vitez, higher education campaign director for U.S. PIRG, in a statement.
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