June 22, 1998 12:45 PM PDT

The Learning Co. buys Broderbund

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The Learning Company said today that it has agreed to buy Broderbund Software in a stock swap valued at $420 million.

The buyout, a sign of further consolidation in the educational software business, comes after Broderbund said last week that it had hired Donaldson, Lufkin, & Jenerette to explore "strategic possibilities," further fueling rumors that the company was up for sale. Broderbund also said last week that third-quarter results would be below analysts' expectations (a loss instead of a profit), part of a continued financial slump for the company.

In afternoon trading, Broderbund's stock surged more than 17 percent on the news, gaining 2.8125 to 19.3125. The shares have traded as high as 37.75 and as low as 15.2500 during the past 52 weeks.

The buyout marks a continued merger binge for Learning Company. In May, the company bought virtual pet software maker PF.Magic. In March, it acquired Mindscape in a $150 million cash transaction. Both Mindscape and Broderbund are based in Marin County, California, an emerging new media mecca like "Multimedia Gulch" in San Francisco or "Silicon Alley" in New York City.

  The Learning Company:
Mergers at a glance*
• Creative Wonders
• Edusoft
• Learning Services
• Minnesota Educational Computing
• PF.Magic
• Skills Bank
• Sofsource
• SoftKey
*partial list

The Learning Company has faced stiff competition in the "edutainment," or educational software market, from Cendant, Disney, Microsoft, and Broderbund, among others.

Broderbund's latest acquisition is subject to regulatory and stockholder approval. It is expected to close in September. The deal calls for Learning Company to exchange 0.8 shares of stock for each Broderbund share.

Some analysts speculated that the deal will get close scrutiny by the Federal Trade Commission. The Learning Company will control about 40 percent of the educational software market with the Broderbund buyout, said Michael Wallace, industry analyst with UBS Securities.

Wallace called the buyout a "great deal" for the Learning Company. "They're getting a company with great products pretty cheap, and it's accretive to earnings," he said.

The buyout will be accretive to the Learning Company's fiscal 1999 earnings by at least 10 cents per share, according to company chief executive Michael Perick.

"We expect to be able to leverage our combined distribution in retail, direct response, international, and school channels to maximize value for the stockholders of the new organization," Perick said in a statement.

Added Broderbund CEO Joe Durrett: "In an industry that has been rapidly consolidating, we believe this merger will align Broderbund with the strongest possible partner."

In March, Broderbund laid off 70 workers as part of a cost-cutting and restructuring campaign. It blamed the downturn in its financial outlook on higher-than-expected customer returns and rebates.

Broderbund, founded in 1980, is a pioneer in the educational software business. The company's products include Carmen Sandiego, Living Books, The Print Shop, and the 3D Home Series.

 

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