The enlarged HM Riverdeep group is projecting annual profits before tax and finance costs of some $1 billion (€725.8 million) after bedding down its $4 billion purchase of Reed Elsevier's US education arm.
The deal comes eight months after Irish education software group Riverdeep completed a mammoth $4.95 billion reverse takeover of Boston publisher Houghton Mifflin, itself the second-largest transaction by an Irish company.
The Reed deal, said to be the fourth-largest deal by an Irish firm, will create an organisation with an enterprise value of more than $10 billion.
The transaction will be subject to lengthy scrutiny by anti-trust regulators in the US, given its strength in the school textbooks market. If it goes ahead, HM Riverdeep will rank among the world's biggest publishers with groups such as Pearson and McGraw-Hill.
Goldman Sachs said in a note that the combined groups' pro-forma market share in the US publishing market, covering pre-school to the last year of high school, will jump to nearly 40 per cent. This compares with 26 per cent for Pearson, the largest educational publisher, and 24 per cent for McGraw Hill.
Riverdeep chief executive Barry O'Callaghan moved very swiftly to agree the Reed Elsevier deal before the start of a formal auction process for the disposal of its US assets.
This process follows Reed's $950 million sale in April of its assessment and international division to Pearson, which also owns the Financial Timesand Penguin books.
When Mr O'Callaghan's interest in the Reed assets first became public last February, corporate financiers in Dublin expressed scepticism that he would be able to execute such a deal so soon after the Houghton Mifflin transaction.
It is understood that the Harcourt deal will bring the total debt in HM Riverdeep to some $7.5 billion. The consideration was funded by $3.7 billion in cash and $300 million in HM Riverdeep common stock.
This will give Reed Elsevier an 11.8 per cent stake in the enlarged group.
The Harcourt deal is unlikely to clear regulators before the end of this year, giving Riverdeep a window to complete the integration of Houghton Mifflin before combining with Harcourt.
HM Riverdeep expects to extract annual cost savings of more than $70 million this year from the Houghton Mifflin and more than $100 million in additional savings from Harcourt.
Assuming such savings are achieved, and additional revenue synergies are realised, HM Riverdeep has told investors that it expects annual earnings before interest, tax, depreciation and amortisation of $1 billion.
The group is moving its main holding company to the Cayman Islands, where it will enjoy greater regulatory freedom and scope to return money to investors by way of a dividend recapitalisation or other means.
It is believed that each of the big equity investors in the Houghton Mifflin transaction increased their investment in a recent fundraising round, in which Mr O'Callaghan raised $235 million in new equity.
Those who put up money include Mr O'Callaghan, private clients of Davy stockbrokers and certain financial and institutional investors.
Credit Suisse and Citigroup, who backed the Houghton Mifflin deal to the tune of $3.14 billion, were joined by Lehman Brothers in the provision of some $3.5 million in debt for the Harcourt deal.
