Houghton Mifflin Harcourt Says No New Books to Be Acquired for Now

Now comes news that the Houghton Mifflin Harcourt Publishing Co. has put a "temporary" freeze on its acquisition of new titles. The publisher is owned by an Irish company that went some seven billion dollars in debt in separate acquisitions of Houghton Mifflin and Harcourt in order to combine them into their present form. Boston.com (Boston is home to the publisher) has the details:

The acquisitions were financed with borrowed money; president Jeremy Dickens told The New York Times that EMPG is paying $500 million per year on its $7 billion debt.

...

Still, some publishing executives found the move puzzling, even for a contemplated sale. "If you put a company up for sale, you do want to be acquiring new books," said Drake McFeely, chairman and president of W.W. Norton & Co. "You don't want to offer only the backlist, but also a forward list. It's my observation that you would expect a higher price, not a lower price, with new acquisitions."

The backlist can represent a huge part of a publisher's income. In recent years, Houghton's backlist has brought in as much as 80 percent of its trade profits. "Any one of us would love to have Houghton Mifflin's and Harcourt's backlists," McFeely said. "Houghton has J.R.R. Tolkien, the Peterson field guides, Philip Roth. Harcourt has T.S. Eliot, Robert Penn Warren. Both lists are gems. But I'd guess they'd have a hard time finding a buyer who would pay what they paid."

...

"I think it's heartbreaking that decisions made by a series of corporate owners are decimating two venerable publishers," said Wendy Strothman, a former Houghton executive who is now a Boston literary agent. "It was their hubris in taking on so much debt when anyone could see that the economy was weakening. The editing and marketing operations pursued quality, and were creative. It's not about the books; it's about the gross mismanagement of the owners."

This last bit is the saddest part of this whole story - poor management decisions seem to be behind the decision to sell the publisher again while, in the meantime, a desperate cutback to conserve cash is put into place. With a liability of $500 million interest per year on this huge debt, the Irish owners have severely weakened Houghton Mifflin Harcourt's chances of surviving in today's economic environment.

HMH spokesman Josef Rosenfeld has denied that the publisher is in the midst of a "freeze, offering this statement in explanation of what is happening:

"A headline about a freeze is very appealing, but in reality all we're doing is taking a good, hard look at everything that comes in, much the way this company is watching all expenses and expenditures," "It's just a higher degree of scrutiny.

If that gives you the impression of a man blowing smoke, don't feel bad. I get the same impression. This, unfortunately, is a company in big financial trouble and what happens next is anyone's guess.