Houghton Mifflin agrees to acquire D.C. Heath & Co. for $455 million.

BOSTON, Mass.--(BUSINESS WIRE)--Sept. 25, 1995--Houghton Mifflin Co. (NYSE:HTN) announced today that it has signed a definitive agreement to acquire D.C. Heath from Raytheon Co. for $455 million in cash.

The board of directors of Houghton Mifflin has unanimously approved the transaction.

D.C. Heath & Co. is a leading publisher of textbooks in areas including modern languages, science, language arts, social studies, and mathematics. In 1994, the company's revenues totaled $180 million. After the acquisition, Houghton Mifflin will have combined revenues of approximately $720 million.

"We are pleased to welcome into the Houghton Mifflin family an organization of D.C. Heath's quality, providing us with important strategic benefits that will strengthen our position for the future," said Nader F. Darehshori, chairman, president and chief executive officer of Houghton Mifflin. "D.C. Heath is an ideal fit for us and will contribute to our ability to build and deliver value for our shareholders by enhancing our long-term growth potential; increasing our profitability and cash flow; extending our scope in key products areas; increasing the scale, efficiency, and productivity in vital segments of our operations; and enhancing our ability to attract desirable strategic partners for future initiatives."

Darehshori added, "The acquisition of D.C. Heath's assets dramatically improves our competitive position in textbooks and related materials. D.C. Heath's strengths in mathematics, modern languages, and science are an exceptionally good complement to our own existing products, especially in the secondary and college textbook markets. We will be more efficient, and thus more competitive with the largest educational publishers."

Darehshori continued, "While providing an immediate complement to our existing strengths, D.C. Heath adds substantially to Houghton Mifflin's potential for sustained long-term growth. With its solid infrastructure and strong management, Houghton Mifflin is in an excellent position to further develop the product and distribution strengths D.C. Heath brings to us. Spreading our product development, sales, and marketing strengths over a larger product base will improve our productivity and efficiency. We believe the opportunity to purchase such a high-quality publisher with product and capabilities so complementary to our own is extremely rare today."

The acquisition will be financed with approximately $350 million in debt. Houghton Mifflin has received commitments for the full amount necessary from Morgan Guaranty Trust Co. of New York. Houghton Mifflin said it expects to achieve efficiencies as it integrates D.C. Heath into targeted operations. As a result of the transaction, which is expected to close in the fourth quarter, Houghton Mifflin will take a one-time charge of approximately $70 million for acquisition and integration-related costs and changes in accounting policies. Because of the one-time charge, the transaction will be highly dilutive in 1995. In 1996, dilution is expected to be minimal, with moderate accretion in 1997, and substantial gains accruing in 1998 and beyond. Houghton Mifflin expects to report third-quarter earnings in line with expectations on Thursday, October 19.

The company added that the acquisition boosts Houghton Mifflin's long-term operating potential in several significant ways:

o In the college market, the acquisition gives Houghton Mifflin a

much more significant presence while substantially increasing

operating efficiency and sales productivity. It will increase

product breadth and depth, allowing Houghton Mifflin to become a

major college publisher of books in mathematics, history,

chemistry, and modern languages. Houghton Mifflin and D.C.

Heath have similar philosophies on product development in the

college area, making it a wonderful fit for both authors and

employees.

D.C. Heath's technology products are a good complement to

Houghton Mifflin's stand-alone network-based products. The

acquisition will permit Houghton Mifflin to spread technology

development costs over a wider base of product.

o In secondary school publishing, the addition of D.C. Heath will

make the company a major competitor in additional disciplines

such as modern languages, science, and health, balancing

Houghton Mifflin's strengths in language arts and mathematics.

The acquisition provides a much larger revenue base, greater

breadth and depth of product, and added editorial expertise. It

also augments the existing sales force and provides more product

to keep that sales force operating efficiently through adoption

cycles. In addition, D.C. Heath has a superb track record of

selling college texts to high school advanced placement

programs, an area of significant sustainable revenue for

Houghton Mifflin going forward.

Houghton Mifflin's secondary school publishing business is

conducted through its McDougal Littell subsidiary, a leading

publisher of high school textbooks, which it acquired in March

1994 and successfully integrated during that year.

o In elementary school publishing, the acquisition provides a

foreseeable stream of revenue through existing lists with

minimal investment required.

o D.C. Heath's strong line of supplemental language arts materials

for use at the elementary and secondary school levels is

extremely popular with parents and teachers, shows good growth

promise, and is an excellent complement to Houghton Mifflin's

textbook programs.

o The acquisition augments Houghton Mifflin's product line with

well-established titles in new areas far more quickly and

efficiently than through internal development.

o The enhanced publishing strength Houghton Mifflin realizes

through the transaction will make the company the educational

publisher of choice for a wide variety of ventures, in such

areas as software and other electronic media products.

Houghton Mifflin is a leading publisher of textbooks, instructional technology, assessments, and other educational materials for the elementary and secondary school and college markets. The Company also publishes an extensive line of reference publications, fiction and non-fiction for adults and young readers, and multimedia entertainment products.

CONTACT: Susan E. Hardy Terence J. Heagney

Vice President Vice President

Investor Relations  External Affairs

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