A breaking news story in Publishers Weekly reports that Houghton Mifflin Harcourt announced a temporary suspension of acquisitions, fueling lots of speculation about the health of major publishing companies in the current toxic economic climate.

In its report, PW used the word “leveraged” in describing a possible underlying reason for HMH’s extraordinary action. A news report in WeeklyTelegraph.co.uk may shed some light on the underlying deal that that brought Harcourt into the arms of Houghton:

Publishing giant Reed Elsevier has sold the remaining parts of its Harcourt publishing division to Houghton Mifflin Riverdeep Group, the publishing and software group chaired by Irish entrepreneur Barry O’Callaghan, for $4bn (£1.96bn).

Mr O’Callaghan’s HM Riverdeep Group completed the deal to buy the US-based Harcourt schools education publishing business yesterday evening, after the stock market closed. It is paying $3.7bn in cash and the remainder in shares.

Investment banks Credit Suisse, Lehman Brothers and Citi advised on and financed the deal for HM Riverdeep, which is expected to complete in the first half of 2008.

The acquisition will make HM Riverdeep one of the largest US educational textbook publishers alongside McGraw-Hill and Pearson’s Simon & Schuster.

Mr O’Callaghan’s interest in the remainder of Reed’s educational business comes just months after his Dublin-based company completed a $5bn reverse takeover of Houghton Mifflin, the fourth largest textbook publisher in the US.

That deal was one of the biggest in Irish corporate history, exceeding the $3.9bn (£2.66bn) leveraged buyout of Jefferson Smurfit, the family-controlled paper and packaging company, by Madison Dearborn, the private equity company, in 2002.

Riverdeep originally floated on Nasdaq in 2000 with a value of $140m, but was then taken private in 2003 with a valuation of $400m.

Reed Elsevier bought the Harcourt Education division in July 2001 as part of its acquisition of Harcourt General. The Anglo-Dutch business information, medical and academic publisher put its education arm up for sale in February, after errors and contract losses in its exam-testing business damaged revenues and profits.

In April, Pearson, owner of the Financial Times, agreed a $950m bid for Reed’s assessment and international education assets, continuing a spate of big deals in the educational publishing sector.

Though other major trade publishers have troubles of their own right now, they are of a more conventional kind — possible slowdown of holiday sales, returns, and the like. Alarmed authors and agents can take comfort, however cold, that the HMH situation is not representative or predictive.

RC