HM Riverdeep chief Barry O'Callaghan is mulling over whether to return to his investors and also approach new backers to raise more than €880 million in fresh equity to finance a bid for Harcourt Education, Reed Elsevier's educational publishing arm.
Senior corporate financiers in Dublin have expressed scepticism about such a bid as Reed's move to sell Harcourt comes only weeks after the completion of Riverdeep's heavily-leveraged $4.95 billion (€4.77 billion) reverse takeover of Boston publisher Houghton Mifflin.
However, sources close to the enlarged HM Riverdeep said the timetable of the Reed auction would provide scope to complete the integration of the two groups this year before the closure of a Harcourt deal early in 2008.
Mr O'Callaghan has not yet assembled a team of professional advisers to examine Harcourt, although he has had tentative discussions with bankers to assess their willingness to provide debt finance for a bid.
The banks most likely to be involved in such talks are Credit Suisse and Citigroup, which together provided $3.14 billion in debt for the Houghton Mifflin transaction.
The group was briefly in the race for the Wolters Kluwer's education business, valued at €700 million, but dropped out after the first round of bids.
The educational assets of the Thomson Corporation are also up for sale, although private equity buyers are seen to be the most likely buyers.
Mr O'Callaghan is said to have started looking seriously at Harcourt last month, before Ernst & Young resigned as auditor to the Riverdeep part of HM Riverdeep due to "incorrect representations" about one of its contracts. The company is expected to announce a replacement shortly.
He said the issue was "immaterial" to Riverdeep's finances and will have no bearing on the enlarged HM Riverdeep.
However, corporate finance specialists said the auditor's resignation might be "unhelpful" in the first instance to any effort to raise new money in a bid for Harcourt. That underperforming business has been valued at some £2 billion (€2.96 billion).
HM Riverdeep sees clear scope to generate considerable synergies and pricing power through a three-way tie-up between Riverdeep, Houghton Mifflin and Harcourt.
Corporate financiers said Mr O'Callaghan would have to demonstrate a very compelling strategic case to secure support for a Harcourt bid.
They also said his current backers might prefer to see results from the Houghton Mifflin deal before embarking on another large transaction.
"They'll want to see a degree of performance before they'll go again," said one senior figure.
