Torstar to Divest Education Group
Jim Milliot -- 11/13/00

Torstar has hired Morgan Stanley Dean Witter to help the Toronto-based media company sell the educational assets of its Children's Supplementary Education Publishing division. The units to be sold are Frank Schaffer Publications, Tom Snyder Productions and Delta Education. The company is keeping the consumer-oriented assets of the group, Learning Adventures direct-to-home business and Curiosity Kits. Torstar said it will use the proceeds from the sale to reduce debt. Torstar CEO David Galloway said the company decided to sell the division because "we just don't think we have the scale to compete in this market."

This is the second time Torstar has put CSEP on the block. In the fall of 1998 the company looked to sell the group in order to help finance its bid to acquire Sun Media. After the bid for Sun failed, Torstar retained the group, although it did sell Troll Communications. The CSEP unit had sales of $185 million ($120 million) in 1999, an increase of 14% over 1998, although profits increased to only $18 million from $17.9 million. Operating profit in the third quarter ended September 30, 2000, fell to $2.3 million from $7.0 million due to lower sales at Frank Schaffer caused by the move to new warehouse facilities. For the nine-month period, profits fell to $2.9 million from $5.5 million.

Torstar is the second major media company to abandon the supplementary education market this year after once viewing it as a growth field. Earlier this year, Tribune Company sold its educational division, which had sales of $339 million, to the McGraw-Hill Cos. for $634 million. A similar multiple would bring approximately $200 million for CSEP, although one investment banker said the Torstar properties are not as strong as the Tribune units. He speculated that the companies could likely be sold to different buyers.

The units that are being retained by Torstar will be rolled into Harlequin's newly formed Creativity division, which includes its direct-to-home craft program, Creativity Kits, and the women's continuity program, Quiet Moments.

Total revenues at Harlequin increased 1.2% to $151.9 million in the third quarter, while operating profit rose 14.1% to $29.2 million. Results have been restated to include the new Creativity division. Strong gains in Harlequin's North American operations offset a decline in earnings from its Overseas group that suffered from a weak performance in the U.K.

For the first nine months of 2000, Harlequin's sales were up 1.4% to $436.9 million, and operating profit climbed 17.4% to $79.8 million.