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August 23, 2011 4:41 PM

Schulte Roth Advising Investor Seeking Breakup of McGraw-Hill

Posted by Brian Baxter

UPDATE: 9/27/11, 7:00 p.m., EDT. Wachtell, Lipton, Rosen & Katz founding partner Martin Lipton told a crowd gathered for the Bloomberg Dealmakers summit that his firm represents McGraw-Hill, which announced plans in early September to split itself in two.

Two activist shareholders are seeking to split The McGraw-Hill Companies into four separate companies.

Hedge fund Jana Partners and the Ontario Teachers' Pension Plan Board (OTPP) claim that the New York-based publishing giant, which comprises four divisions, should also hire an independent overseer for its ratings agency subsidiary, Standard & Poor's Financial Services (S&P).

Schulte Roth & Zabel business transactions chair Marc Weingarten in New York is advising Jana Partners on the McGraw-Hill matter, according to SEC filings. Weingarten previously advised New York-based Jana in a proxy fight with Time Warner, and Schulte Roth is also representing Jana in bankruptcy litigation against claims asserted by former clients of disbarred lawyer Marc Dreier of now-defunct Dreier LLP.

Jana cofounder Gary Claar began his career at Schulte and the hedge fund's general counsel, Jennifer Fanjiang, is a former associate at the firm. Jana's chief legal officer is Charles Penner.

SEC filings show that OTPP general counsel Melissa Kennedy and associate general counsel and senior legal counsel for investments Jeffrey Davis are leading an in-house legal team for the Toronto-based investment giant. Kennedy and Davis did not immediately respond to requests for comment on the pension fund's external legal advisers.

Under the plan being pushed by Jana and the OTPP, which own a combined 5.6 percent of McGraw-Hill shares, the company would be split among its four distinct units: McGraw-Hill Education, McGraw-Hill Information and Media, McGraw-Hill Financial, and the S&P ratings service.

The S&P division created a controversy earlier this month when it downgraded the U.S.'s AAA credit rating for the first time. Both the U.S. Department of Justice and the Securities and Exchange Commission are investigating S&P and other credit rating agencies in connection with their roles rating the controversial mortgage-bond deals that helped set the stage for the financial crisis.

"The recent regulatory and political scrutiny around the S&P Ratings business highlights the drawbacks of housing wholly unrelated businesses together," Jana and the OTPP said in a presentation on Monday filed with the SEC. "Public scrutiny of the S&P Ratings business serves as an overhang on McGraw-Hill's valuation . . . Separating other businesses would release them from unjustified S&P Ratings overhang, and allow for greater focus from top management at S&P Ratings."

McGraw-Hill announced late Monday that former Citigroup executive Douglas Peterson would become the new president of S&P, replacing Deven Sharma, who is stepping down at the end of the year.

A spokesman for McGraw-Hill, one of the world's largest producers of textbooks and other educational materials, said the company would not disclose its outside counsel. McGraw-Hill's general counsel, Kenneth Vittor, did not respond to a request for comment on the company's external legal advisers. (McGraw-Hill has publicly confirmed its engagement of investment banks Goldman Sachs and Evercore Partners to conduct a review of its portfolio of operations.)

Former Baltimore mayor and ex-Wilmer Cutler Pickering Hale and Dorr partner Kurt Schmoke serves on McGraw-Hill's board of directors. In the past, McGraw-Hill has turned to Shearman & Sterling for transactional work. The firm handled the company's sale of BusinessWeek magazine to Bloomberg in October 2009 and last year advised McGraw-Hill on a $1.2 billion three-year credit facility arranged by J.P. Morgan Securities and Banc of America Securities.

A Shearman spokesman declined to comment on whether the firm is currently advising McGraw-Hill.

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