updated 11/29/2006 11:32:42 AM ET 2006-11-29T16:32:42

Houghton-Mifflin Co., one of the nation's largest textbook publishers and home to early American authors such as Ralph Waldo Emerson, has agreed to a nearly $1.8 billion buyout offer from a group led by educational publishing executive Barry O'Callaghan.

Under the deal announced Wednesday, the buyers are paying $1.75 billion in cash for Houghton. In addition, some Houghton managers and employees are rolling over $40 million in stock into shares of the new company, which is being called HM Rivergroup PLC.

HM Rivergroup is also assuming about $1.61 billion in debt in the deal.

Houghton Mifflin, the fourth-largest textbook publisher in the United States, is also home to authors including Emerson and Henry David Thoreau, as well as J.R.R. Tolkien.

Houghton, founded in 1832, is currently owned by affiliates of private investment firms Thomas H. Lee Partners, Bain Capital Partners, Blackstone Group and management.

Houghton estimates the company's educational materials generate about 90 percent of total revenue.

As it buys Houghton, HM Rivergroup will also acquire Riverdeep Holdings Ltd., a U.S. publisher of branded interactive educational and personal publishing products. That company is controlled by O'Callaghan and that transaction is valued at $1.2 billion in stock and debt.

After completion of the transaction, O'Callaghan and the management group will own approximately 50 percent of HM Rivergroup, while former shareholders of Riverdeep other than O'Callaghan will own about 15 percent. The remaining 35 percent will be owned by new investors.

Riverdeep has recently purchased software companies that serve schools in the United States and internationally.

HM Rivergroup said the combined company will generate revenue of about $1.43 billion a year.

"Riverdeep represents an excellent strategic fit with Houghton Mifflin, bringing its high quality electronic courseware offerings to our core basal textbook and supplemental products business," said Tony Lucki, chairman, president and CEO of Houghton Mifflin.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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