$520-Million Deal : Time Inc. to Buy Textbook Publisher Scott, Foresman

NEW YORK â€”  Time Inc. said Tuesday that it has agreed to buy textbook publisher Scott, Foresman & Co. for $520 million, a move that would make Time the second-largest book publisher and a leader in one of the fastest growing segments of the communications business.

With revenue of about $200 million a year, Scott, Foresman has been a major textbook publisher since the 1920s, responsible for such well-known titles as the “Dick and Jane� reading series, which was an elementary school standard.

15% Revenue Growth

The Glenview, Ill., company has posted 15%-a-year revenue growth in the past three years as children in the “baby boom echo� generation have reached school age, analysts say.

Scott, Foresman is the nation’s fifth-largest textbook publisher, selling primarily to elementary and high schools.

After the announcement, Time’s stock tumbled $3.125 a share to close at $73.50 on the New York Stock Exchange. Analysts said the news dashed some investors’ hopes that Time would try to raise its stock price by repurchasing additional common shares with a cash hoard that now exceeds $500 million.

The seller is SFN Cos., a publisher that is seeking to sell off its operating divisions by the end of this year to avoid the higher tax rates that would apply to later sales under the new federal tax reform law. SFN, based in Glenview, Ill., also announced Tuesday that it has agreed to sell its South-Western Publishing Co. to the British-based International Thomson Organization for about $270 million cash.

South-Western Publishing sells to the high school and college textbook markets.

In a statement, SFN said Time intends to keep the company’s current headquarters, management and compensation.

Time’s book publishing businesses include Book-of-the-Month Club, Time-Life Books and Little, Brown and have combined revenue of more than $500 million a year.

Good Balance to Magazine Business

Analysts said the steadiness of the school textbook business will provide a good balance to the swings of the magazine publishing business, in which Time is largest with a market share of about 20%. Scott, Foresman’s rapid growth rate will also help a company that has been burdened by the slower growth of its cable-television business, they noted.

“They’re getting a company with a long, impressive record in one of the fastest growing segments of the media business,� said J. Kendrick Noble, an analyst with Paine Webber in New York.

Noble estimated that revenues of the elementary-to-high school textbook publishing industry will grow at an annual compound rate of 12.5% for the next decade, while its net income will advance at an annual rate of 14.5%. The number of American school-age children is expected to continue to rise through 1997, he said.

The acquisition is Time’s largest, exceeding the $480 million that it paid for the Southern Progress publishing concern last year. Although Time has been a perennial target of takeover speculation, a spokesman denied that the acquisition was meant to soak up cash and reduce its attractiveness as a takeover candidate. “There’s no hidden agenda,� spokesman Michael Luftman said.

While Time declined to disclose Scott, Foresman’s earnings, Luftman said the company has been “highly profitable.� He said the price is “well within the reasonable range� when evaluated as a multiple of the acquired company’s earnings--the yardstick typically used by financial analysts. SFN COMPANIES AT A GLANCE Leading publisher of textbooks, teaching aids and education materials through subsidiaries Scott, Foresman & Co. and South-Western Publishing Co. Company is closely held. Preferred shares are traded on the American Stock Exchange.

(In millions) Year ended Dec. 31: 1985 1984 1983 Revenue $500 $324.20 $275.60 Net income 29.10 28.78 26.49

Assets: $319 million Employees: 4,000