Curious George, Bilbo Baggins, and many other beloved characters are about to enter a new chapter. But this one won’t be written by a Boston company.
Houghton Mifflin Harcourt on Monday unveiled a $349 million deal to sell its trade division to HarperCollins, a New York division of the News Corp publishing empire led by Rupert Murdoch. The storied Boston company will say goodbye to its consumer-focused titles ― a veritable library of nonfiction and fiction books that represents about one-fifth of its revenue ― to focus on its core school textbooks business, trim debt, and accelerate a shift to digital sales.
“It’s like a long marriage ending for me,” said Lois Lowry, one of the company’s most prominent current authors. “Houghton Mifflin has been such an icon for such a very long time. It’s sad to see their trade division take on a new name.”
The deal, expected to close sometime midyear, didn’t come as a surprise to the publishing world. HMH, as it’s now known, had disclosed last fall that it was shopping around its HMH Books & Media trade business. The country’s second-largest publisher, HarperCollins, was considered a natural buyer after it lost out in the high-profile contest last year for the Simon & Schuster publishing house.
But the price for HMH Books & Media, equal to nearly twice the division’s $192 million in annual revenue, did seem surprising to investors: Shares in HMH rose 18.7 percent after the deal’s financial terms became public on Monday, to close at $7.10. That climb brought the stock to its highest point in nearly two years, although it’s still a far cry from the $20 range it traded in five years ago.
HMH said HarperCollins is offering jobs to all 230 people who work in HMH Books & Media. Before the COVID-19 pandemic forced people to work from home, most of them were based in Boston, New York, or Indiana, where the company runs a warehouse. Nearly 2,400 will remain with HMH. HarperColllins, meanwhile, employs about 4,000 people and reported $1.6 billion in revenue last year. It expects to eventually wring $20 million in annual cost savings out of the HMH deal.
HMH traces its roots back nearly two centuries to its inception as a small publishing business at a bookstore at the corner of Washington and School streets in Downtown Crossing. In its early years, the company’s stable of authors included Ralph Waldo Emerson, Henry David Thoreau, and Harriet Beecher Stowe. It has undergone numerous ownership changes in recent decades, shifting from conglomerate control to private equity to its current form as a publicly traded company.
Its trade division’s backlist includes more than 7,000 titles. The catalog includes J.R.R. Tolkien’s Middle-earth novels, George Orwell’s “Nineteen Eighty-Four″ and “Animal Farm,” and a number of Curious George books. (HarperCollins has the British publishing rights to most of Tolkien’s work, while HMH has the US rights.) The business is known for cookbooks and books for children and young adults and has been branching into television, including with the “Carmen Sandiego” animated series on Netflix.
Chief executive Jack Lynch has been pushing HMH’s core textbook business to shift toward digital formats, a shift that accelerated last year during the pandemic. To underscore this change, the company in its press materials now refers to itself as a “K-12 learning technology company,” not a book publisher, and it plans to start breaking out its software subscription renewal rate for investors to see each quarter.
The pandemic prompted many school districts to pull back on purchases, causing revenue to plunge at HMH. As a result, the company cut more than 20 percent of its staff in the fall, or about 525 people, after factoring in new “digital first” positions. Total sales fell 26 percent to $1 billion for the year. Sales at the trade division, however, rose 7 percent.
Jim Milliot, editorial director at Publishers Weekly, said he expected HMH Books & Media would fetch a solid price after seeing the German media giant Bertelsmann sign a deal in November to buy Simon & Schuster for more than $2 billion and join it with Bertelsmann’s Penguin Random House division, the largest book publisher.
“As soon as I saw that price, I thought, ‘Boy, Houghton Mifflin is going to be happy,’ ” Milliot said.
COVID-19 proved to be a boon, in general, for book sales in the United States, Milliot said, as people read more because they were stuck inside. “The way they survived the pandemic made some of the bigger owners a little more bullish on the market, that reading is still something Americans want to do,” he said.
The publishing industry has experienced several rounds of consolidation in recent years, capped by the Simon & Schuster and HMH deals. Milliot said that while smaller independent publishers abound, many authors are apprehensive about the diminishing number of big players.
“There’s a feeling that it gives them fewer options to sell their books to companies that have the resources to pay a substantial advance,” Milliot said.
Lowry, who penned the Newbery Medal-winning children’s books “Number the Stars” and “The Giver,” said she heard about the HMH sale Monday morning when her editor, Margaret Raymo, called to break the news.
“She wasn’t despairing,” Lowry said. “She said it’s going to be quite a change, but she thinks she and I will be OK.”
Lowry estimated she has published nearly 50 books with HMH over the years, with another one coming in 2022. That book, it looks like, will now have the HarperCollins name on it instead.
“There was always that personal connection,” Lowry said of her relationship with HMH. “Once it’s a big conglomerate, that will change, I’m sure.”