Strengthening its presence in the U.S., Vivendi Universal, Europe's largest media company, agreed Friday to acquire Houghton Mifflin Co., one of the nation's last major independent book publishers, for $1.7 billion.
The purchase of the world's fourth-largest educational publisher catapults Vivendi, which ranks fifth in the world in publishing, into the No. 2 spot after Pearson.
The purchase is the latest U.S. conquest for the ambitious Vivendi chief, Jean-Marie Messier, who has been on a mission over the last five years to transform the Paris-based water and sewer utility into a world-class media powerhouse.
In December, Messier completed a $30-billion double merger with Universal Studios' parent, Seagram Co., and Europe's largest pay television provider, Canal Plus.
Messier has said he plans to establish Vivendi Universal as a supermarket for digital subscription services that rivals AOL Time Warner Inc. and build off the company's core strengths as the world's No. 1 music company, a Hollywood studio and European digital television juggernaut.
The company's agreement last month to buy music-downloading Web site MP3.com Inc. neatly fits into that strategy, analysts say. But the Houghton Mifflin acquisition appears to be a slight detour, according to some investors.
"Educational publishing is a decent, slow-growth business," one analyst said. "But there are no synergies with Universal Pictures, Universal Music or Canal Plus, which Messier has said would be his emphasis."
Messier's vision has bombed on Wall Street. Vivendi shares have fallen by a third in the last year. Analysts say recent sales of a large chunk of Vivendi holdings by the Bronfman family, which controlled Seagram, is a vote of no-confidence.
Messier, however, says the Houghton Mifflin purchase fits into his goal of being first or second in every one of Vivendi's businesses.
"Our priority is to develop the most attractive and compelling content offering on all devices and platforms," Messier said Friday in a statement. "We now have worldwide leadership positions in music, film, games and education."
Though Vivendi Universal Publishing, which until recently was called Havas, is a leader in France, Spain and Brazil, the acquisition of the Boston-based textbook publisher gives the company a much-needed position in the all-important U.S. market. For the first quarter, Houghton Mifflin posted a widened loss of $42.4 million.
Under Friday's deal, Vivendi Universal will pay $60 a share in cash, or 10% more than Houghton's Thursday closing price of $54.56 on the New York Stock Exchange. The company will assume $500 million in debt. Analysts say the price was fair.
Houghton Mifflin shares Friday rose $4.99, or 9.2%, to $59.55. The stock have risen 18% this year on takeover speculation. The deal is subject to shareholder and regulatory approval.
People close to the company said the purchase is evidence of the rising profile within Vivendi of Agnes Touraine, vice chairman and chief executive of Vivendi Universal Publishing. It is also part of Messier's increased U.S. focus. After he bought a $17.5-million apartment on Manhattan's Park Avenue recently, speculation has been rampant that the executive might move company headquarters to New York.
Vivendi purchased Havas, France's largest publishing company, in 1998. The company publishes the Larousse encyclopedia. Vivendi also bought the educational software business of Cendant Corp. in 1998.
In the U.S., Vivendi also owns Kingfisher, a children's publisher, and adult publisher Syracuse.
Spending on textbooks in the U.S. is expected to increase to $5 billion in 2003, from $2.3 billion in 1996, according to CIBC World Markets, due to rising enrollments and increased government spending.
Vivendi Universal Publishing accounted for about 7% of the company's revenue last year.