McGraw-Hill details 'significant' savings after Cengage merger, including job cuts

A report for investors issued by McGraw-Hill has said that $285-$370m in annual cost savings over three years has been identified across McGraw-Hill and Cengage when they form a combined company, with 65%-67% of that sum made up of “labour savings.”

Labour cost savings would be driven by consolidation of sales and go-to-market organisations, the report stated. Corporate cost savings, driven by a reduction of duplicative roles across the two organisations, would also be made.

Product savings driven by editorial and production synergies, and real estate savings driven by the consolidation of office spaces, would also be on the cards. “Both companies have strong track records of outperforming costs savings targets,” the report noted.

In different functions, labour and headcount cuts were estimated as follows: in sales, between 20-25% of a baseline “addressable” costs figure of $318m; in “product”, 12-19% of addressable costs of $239m; in marketing, 26-32% of $62m; and in corporate overhead, 34-39% of addressable costs of $122m.

The report identified a “reduction of cost structures and portfolio rationalisation” in the Higher Education segment, plus “significant opportunity to rationalise extensive and expensive global cost structure” in the International segment.

Severance costs of $50m were estimated.

The combined company will have over 8,000 employees globally, with over 2,000 in its sales force.

A Cengage spokesperson told The Bookseller: "There are many synergies between the two organizations, and with that also comes some overlap. That said, we expect that the vast majority of jobs will continue. The transaction is expected to close in early 2020, pending regulatory approvals. Until that time, we remain separate companies and will operate as independent businesses."

As a whole, the McGraw-Hill/Cengage merger would increase global scale, providing an opportunity to accelerate revenue growth from an expanding portfolio,  including in key countries such as China and India, the investors' report said. It also offers the opportunity to accelerate industry movement away from the traditional textbook model to the recurring digital model, it stated.