Executive Value Analysts Kevin Carolan Joseph Celentano Annette Givelekian Edward Keever Diane Masi

Intrinsic Value

Drivers of Value Estimate ROIC NOPLAT Spread ROR

ROIC

NOPLAT

Spread

ROR

Segment Contribution To Value Education 25.3% Financial Services 70.2% Media 4.5%

Education

Financial Services

Media and Information Services

Consolidated Divisions

Continuing Value as a % of Total Value

MVA MVA = $7.837 billion MVA = Market Cap – Invested Capital = $11.594b - $3.767b MVA = $7.837 billion

Market To Book Ratio Market Cap/Invested Capital =11594/3767 = 3.1 For every $1.00 invested the market will pay $3.10

Restructuring Hexagon Current Market Value Value as is Value With Internal Improvements Value with Internal Improvements and Disposals Value with growth Total Potential Value

Media and Information Services Media Division as a separate segment Broadcasting McGraw Hill to form alliance with Disney Bring added sponsorship and viewership to McGraw Hill Merge the B-to-B segment with the Financial Segment

Financial Services Combine Information Systems with Financial Systems Internet Benefits Rebound in Advertising Increase of 14% to $1.67billion Standard and Poor’s competes with Moody’s Untapped markets

Education Continue to leverage the Internet Strategic alliances with schools and authors Use of third party links and cross references

Debt Capital Increase to 20%(WACC)

Use of Newly Created Debt Invest in segments at the same rate as percentage of value to company Education 25% Financial Services 70% Media and Information 5%

Change in Intrinsic Value Value Estimate & Sensitivity Analysis:  Value Estimate Value Estimate Intrinsic Share Intrinsic Share Value-EP Value-FCF Present value of EP or Cash Flow 1 Stage 14,552.2 18,407.0 Add: beginning capital (EP model only) 3,847.0  Intrinsic operating value 18,399.1 18,407.0 times: mid-year adjustment factor 1.035 1.035 Operating Value 19,046.1 19,054.2 Add: Non-operating assets 380.6 380.6 Intrinsic total value 19,426.7 19,434.8 Less: Total MV of debts and lease (1,861.8)  (1,861.8)   Minority interest Preferred shares Employee stock options Intrinsic common equity value 17,564.9 17,573.0 Divided by: # of common shares outstanding 191.8 191.8 Intrinsic share value 91.6 91.6           

New Capital Structure As Is New Cap EPS 8.9 10.3 ROIC 24% 26% NOPLAT 1.5B 1.8B Cash 11B 15B

Continuing Value as a % of Total Value EP FCF Forecast Period 34.2% 31.4% Continuing Value Period 65.8% 68.6%

Probability Scenarios Scenario A: Steady growth in population of the U.S., college students and the Asian population enables global expansion resulting in a 5% yearly growth rate with an equivalent growth in operating profit. Scenario B: MHP restructures its capital by increasing its debt ratio to 20%. Excess cash is invested in upgrading the media segment resulting in a growth in market share and advertising revenues. This is in great part due to business received from Disney, which is the parent company of its ABC affiliates. This, plus global expansion of its education and financial segments results in a 10% yearly growth rate. Scenario C: Choice provider of educational materials and financial analyst tools worldwide. Restructures capital , increasing debt ratio to 30%. Through a set of acquisitions of media entities it becomes a major player in the industry. Consistent yearly growth of 15% leads to an acceleration of operating margins with no end in sight. MHP becomes the GE of the 21st century.  

Weighting For Probability Expected Value Intrinsic Value Prob Expected Value (Share $) (%) (Share $) Scenario A 67 .60 40.2 Scenario B 105 .35 36.8 Scenario C 152 .05 7.6 84.6

Executive Value Analysts