Houghton Mifflin packs up Harcourt

Leading textbook publisher Houghton Mifflin has agreed to pay $4 billion for the Harcourt Education, Harcourt Trade and Greenwood-Heinemann divisions of Reed Elsevier. The deal creates a textbook powerhouse, as it combines two of the leaders in market-share into one entity. With textbook prices already spiraling out of control, this may not bode well for students. Less competition has a way of leading to higher prices.

But if Houghton Mifflin is in a buying mood, I have an idea for them: Scholastic Corporation (NASDAQ: SCHL), the world leader in children's books with its Harry Potter series leading the charge. Many readers probably have fond memories of the quarterly book orders, when the teacher walked into the room carrying a big red and white box, as our class cheered, eagerly awaiting the Boxcar Children or Baby Sitter's Club book our parents had ordered for us.

The acquisition of Scholastic would probably come with a lot of cost-cutting options, as the distribution channels are similar. Shares of Scholastic have been stagnant for a decade, and not even Harry Potter has been able to send the company to new highs. They probably ought to start considering strategic alternatives soon, and the company's solid profitability could make it an interesting target for a strategic buyer.