Scholastic Corporation announced a modified Dutch auction tender offer to repurchase up to $200 million of its common stock at prices between $20.00 and $23.00 per share. The offer expires December 19, 2024, with settlement expected by December 27. The high end of the range represents a 4.5% premium to Tuesday's closing price of $22.00.
The company will accept shares on a pro-rata basis if tenders exceed the cap. BofA Securities is serving as dealer manager. Scholastic had $414 million in cash and equivalents as of August 31, 2024, against $115 million in long-term debt. Free cash flow in fiscal 2024 reached $187 million, up 23% year-over-year, driven by inventory normalization and tighter working capital management.
This marks Scholastic's first tender offer since 2019, when the company bought back $75 million at prices between $35.00 and $40.00 per share. The current offer commits nearly half the balance sheet's cash position to equity retirement. That shift comes as the company exits a two-year restructuring that closed 15 distribution centers and cut 8% of headcount. Adjusted EBITDA margins improved 210 basis points to 11.2% in the most recent quarter, but remain below the 13.5% average Scholastic maintained between 2015 and 2019.
The tender targets a stock trading 38% below its five-year average multiple of 12.1x forward earnings. Shares have underperformed the S&P 500 by 1,840 basis points over the past three years as school budgets tightened and book fair revenues declined 6% annually. The company's classroom and supplemental materials division, which generates 42% of revenue, posted flat sales in fiscal 2024 despite enrollment growth of 1.8% across U.S. K-12 schools.
Allocators should note the timing. Scholastic typically generates 68% of annual free cash flow in the fiscal second and third quarters, driven by back-to-school orders and holiday book fair cycles. Management has guided to $225-$250 million in fiscal 2025 free cash flow, implying capacity for another $100-$125 million in buybacks or acquisitions by August 2025. The company also maintained its $0.60 annual dividend, yielding 2.7%.
Watch for tender participation rates disclosed by December 23. Insider ownership sits at 19.4%, concentrated in the Robinson family, which has not publicly indicated tendering intentions. If participation falls below 50% of shares sought, it signals insider confidence in near-term operational upside, likely tied to new distribution agreements with Amazon and Target launching in Q1 2025. If participation exceeds 90%, it confirms broad shareholder exhaustion with the equity story. The company reports fiscal Q2 earnings on December 19, the day the tender expires.