["Faithless is he that says farewell when the road darkens. " - J. R. R. Tolkien]
From the Sic Transit Authority
By Peter Hutchinson
We read in the Times the other day that Houghton Mifflin Harcourt has gone into Chapter 11 in an attempt to eliminate $3.1 billion in debt. Billion! The faint scraping noise you hear is Henry Oscar Houghton turning in his grave.
Houghton was born in Sutton, Vermont in 1823, learned printing at the Burlington Free Press, moved to Boston, and in 1848 became owner of the Riverside Press in Cambridge, Massachusetts. He had a lifelong gift for picking good partners and was known for prudence in business: Ellery Sedgwick described him as “conservative, shrewd, scrupulous, and far-sighted.”
In 1876 his company acquired the rights of Crocker, Brewster, & Company, a Boston publisher founded in 1818… which means that if it can struggle on for another six years, Houghton Mifflin Harcourt could claim a bicentennial.
In 1878 Houghton partnered with James R. Osgood to form Houghton, Osgood & Company. By acquiring Osgood’s portfolio, Houghton became successor to the legendary publishing company Ticknor & Fields, whose Olympian authors included Hawthorne, Holmes, Longfellow, Thoreau, and Whittier, and whose publishing legacy stretched back to 1832 and Boston’s Old Corner Bookstore.
Following reorganization in 1880 and the addition of a new partner, the business became Houghton, Mifflin & Company, shortened to the Houghton Mifflin Company in 1908. The Harcourt imprint was acquired a century later, in 2007.
With careful management and a genuine appreciation for books, Henry O. Houghton built a business that earned a reputation for high-quality production and a canonical author list. His interest in schools and learning was reflected in his company’s long history of service to educational markets. It’s probably a good thing Houghton (who died in 1895) didn’t live to see what became of the business.
Since the turn of the 21st century, his brand has been pawned, trampled, and squandered. The company has been flipped around by a parade of owners and investors (many of them offshore) with no background in publishing… and no apparent interest in the craft. Their names tell the tale: Thomas H. Lee Partners, Bain Capital, the Blackstone Group, Paulson & Company, Guggenheim Partners, and Istithmar World Capital, owned by the royal family of Dubai… a tangled skein of rising debt, falling sales, and failed strategies. In response to the economic downturn of 2008 Houghton Mifflin Harcourt actually announced a freeze on acquiring new titles.
The company’s archives contain records dating back to the early days of Ticknor & Fields… a treasure trove of literary history that has yielded engaging, insightful books by scholars like Ellen Ballou, William Charvat, John Tebbel, Warren S. Tryon, and Michael Winship. What will the ledgers from the past ten years yield… other than a chilly, queasy sensation?
We believe that you have to appreciate publishing if you want to run a publishing company. For confirmation, look no further. We also believe that professional investors are supposed to be, like Henry O. Houghton, “conservative, shrewd, scrupulous, and far-sighted.” Oh well.
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Houghton Mifflin Harcourt Publishing Files For Bankruptcy
By Dawn McCarty and Phil Milford
Houghton Mifflin Harcourt Publishing Co., the publisher of authors from Mark Twain to J.R.R. Tolkien, sought bankruptcy protection to eliminate more than $3 billion in debt.
The company, based in Boston, listed $2.68 billion in assets and $3.53 billion in debt in Chapter 11 documents filed today in U.S. Bankruptcy Court in Manhattan. More than 20 affiliates also entered bankruptcy, including Broderbund LLC and Classroom Connect Inc.
“The global financial crisis over the past several years has negatively affected” Houghton Mifflin’s financial performance, in a business that “depends largely on state and local funding” for the schoolbook market, said William Bayers, company general counsel, in court papers.
He cited “recession-driven decreases” and “purchase deferrals” by the states and a “lack of anticipated federal stimulus support” for “substantial revenue decline.”
The filing comes as traditional print-book publishing faces growing competition from e-books. Sales of adult paperbacks and hardcover books fell 18 percent from 2010 to 2011, according to the Association of American Publishers. Borders Group Inc., the second-largest U.S. bookstore chain, filed for bankruptcy in February 2011.
Unsecured Creditors
Among Houghton Mifflin’s largest unsecured creditors listed in court papers were Chicago-based R.R. Donnelley & Sons Co. (RRD) and New York-based Williams Lea Inc., owed more than $20 million each in trade debt.
Houghton said May 11 it received support from more than 70 percent of its lenders to restructure its debt. The company has about $2.85 billion of loans maturing in the next two years, according to data compiled by Bloomberg.
The company, with about $1.29 billion in sales last year, said it plans to borrow as much as $500 million through Citigroup Inc. (C) to complete the bankruptcy process, court papers show.
Under the proposed recovery plan, Houghton’s long-term bank loan and bond debt would convert to all of the equity in the reorganized company, according to a May 11 statement. Existing shareholders would receive warrants for 5 percent of the new stock if they voted in favor of the plan.
Revenue Source
Houghton provides educational products and services to about 60 million students in 120 countries, according to its website. The company also prints and distributes electronic books owned by one of Amazon.com Inc. (AMZN)’s publishing arms, under an agreement announced in January.
The accord allows Amazon, the world’s largest Internet retailer, to market books to people who don’t visit its site and provides Houghton with a new source of revenue as sales decline at brick-and-mortar bookstores.
Moody’s Investors Service in May cut Houghton’s corporate credit grade to Ca, the second-lowest rating and reserved for borrowers that “offer very poor financial security.” In March, Moody’s said the company’s capital structure was “unsustainable without a significant rebound in earnings.”
Houghton’s origins date to 1832, according to the company. Among its authors are Ralph Waldo Emerson and Jonathan Safran Foer, and the company’s titles include the “Curious George” and “Lord of the Rings” books.
The case is In re Houghton Mifflin Harcourt Publishing Co, 12-bk-12171, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
