CORK-BORN financier Barry O’Callaghan has resigned as chief executive of Houghton Mifflin Harcourt (HMH), the US education publisher that he helped to create through two multibillion-dollar mergers in 2006 and 2007.
HMH said that Mr O’Callaghan had left to pursue other ventures.
He has been replaced on an interim basis by chief financial officer Michael Muldowney.
Speaking to The Irish Timesyesterday, Mr Muldowney said Mr O'Callaghan would act as a "senior adviser" to HMH under a one-year contract initially.
Mr O’Callaghan’s departure comes one year after HMH was involved in a major financial restructuring.
This comprised a $650 million cash injection and a debt-for-equity swap that resulted in about 60 per cent of its $7 billion borrowings being eliminated.
A group of Irish private investors, put together by stockbroker Davy, had their $170 million equity stake wiped out.
The restructuring was necessary after a steep fall in sales due to cutbacks in US education spending in 2008 and 2009.
US hedge fund Paulson Co, led by American billionaire John Paulson, became HMH’s biggest shareholder after the deal.
The Irish investors were given warrants last year – effectively stock options – in HMH that could be exercised if the business reached an enterprise value of €10 billion by a certain date.
Mr Muldowney said HMH’s enterprise value is currently “considerably less” than the target figure.
Sources with knowledge of the business said yesterday that the value of HMH has been marked down by 25 per cent by Paulson since the restructuring.
HMH was formed through two mega mergers. Mr O’Callaghan’s Irish e-learning company Riverdeep did a reverse takeover of Houghton Mifflin in a transaction valued at $4.95 billion in 2006.
Harcourt was then acquired for €4 billion the following year to form HMH, which is registered in Delaware in the US.
HMH was a subsidiary of Education Media and Publishing Group (EMPG), a Cayman Island-registered company. There is no relationship now between HMH and EMPG, Mr Muldowney said.
Mr O’Callaghan remains as chairman of EMPGI, an international offshoot with activities in China and India in education publishing.
HMH employs 280 staff in Ireland and Mr Muldowney, in Dublin yesterday to meet employees, said it remained committed to growing here in spite of Mr O’Callaghan’s departure.
Mr Muldowney said staff numbers would rise to “north of 400” over the next two to three years, supported by Enterprise Ireland.
HMH has also invested €3.5 million in a new building at Trinity Square in Dublin. “It’s a great hub for us,” Mr Muldowney added.
Mr Muldowney said HMH’s pretax profit rose by 9 per cent in 2010.
It also recently won two contracts in Florida worth a combined $30 million and increased its market share in the US, he said.
HMH has hired Korn Ferry to lead a search to replace Mr O’Callaghan.
BARRY O'CALLAGHAN: PROFILE:
BARRY O’CALLAGHAN was once the blue-eyed boy of the Irish investment circuit.
Having successfully built up Irish e-learning company Riverdeep, the Cork-born former investment banker pulled off two mega mergers in 2006 and 2007 to position Houghton Mifflin Harcourt as the biggest player in education publishing in the US.
By his own admission, in August 2008 his paper wealth stood at “well north” of $1 billion.
But like many of his peers in Ireland, the credit crunch pulled the rug from under him.
Education spending in the US fell off a cliff and he lost control of HMH to American billionaire John Paulson, which must have been a bitter pill to swallow.
Irish clients of Davy saw their $170 million investment go up in smoke, while Claret Capital, backed by Senator Feargal Quinn and family, was also burned.
Mr O’Callaghan’s own 21 per cent stake was wiped out. It had been financed by Anglo Irish Bank.
Many believe that Mr O’Callaghan’s strength was as a clever dealmaker at a time when credit was bountiful.
Michael Muldowney, who took the reins of HMH yesterday, described him as a “truly talented entrepreneur”.
What next? He is chairman of EMPGI, a small offshoot of HMH with publishing interests in China and India. HMH have also given him a one-year contract as a senior adviser.
The 41-year-old also controls the Cliff House Hotel in Waterford and the Cliff Townhouse in Dublin.
