By the complaints coming from Washington, you might think that the Standard & Poor's credit rating service is a big headache for its owner, the McGraw-Hill Companies Inc .

But from Wall Street's perspective, the ratings business is a great money-maker, and the real problem is its capital-intensive corporate sibling, McGraw-Hill Education, the company's textbook division.

S&P made twice as much money as McGraw-Hill Education did in 2010 while holding one-fourth as much in assets. Now investors are calling for the parent company to shed the education division, much the way school children across the United States want to leave the company's textbooks on their desks rather than weigh down their backpacks.

The company is taking the arguments seriously, even if doing so leads to Chairman and Chief Executive Harold Terry McGraw III, great-grandson of the founder, parting ways with the textbooks bearing his name.

There are no sacred cows, a person familiar with the matter said on Wednesday.

McGraw Hill has hired Evercore Partners to look at various options, including a spin-off or sale, for the business, the source said.

While the company will consider bids from the business and some private equity firms have expressed an interest, an outright sale of the long-held assets is less likely than a spin-off because of tax considerations, the source said.

McGraw Hill could reach a decision as early as next month, the source said.

ACTIVIST PRESSURE

Taking the textbook division out of the company would please many investors.

Education belongs as a separate business, said Pat English, chief investment officer of Fiduciary Management Inc. The Milwaukee, Wisconsin-based investment firm is the 10th biggest institutional holder of the stock with 2.2 percent of the company, according to Thomson Reuters data.

English endorsed a recently disclosed effort by hedge fund Jana Partners and the Ontario Teachers' Pension Plan to push the company to consider restructuring to get the stock price up. The two funds revealed August 1 that they together own another 5.2 percent of the company.

Jana/Ontario Teachers are serving a useful purpose, English said by email.

Analysts have recently stepped up their arguments that the company is worth more in pieces than as a whole.

The stock closed at $40.05 on Wednesday, up 3.2 percent. Valued by its parts, the company should be worth at least $50 a share, according to recent reports from analysts at JPMorgan, Stifel Nicolaus, among others.

So far, McGraw-Hill has promised publicly only to take what CEO McGraw called significant actions by year-end. Goldman Sachs Group Inc is helping the company in a review of its portfolio of businesses that began last year.

Taking the education business out of the company is the most obvious move the company could make, said Michael Meltz, analyst at JPMorgan.

It is a very different business and it has very different long-term prospects than Standard & Poor's and the rest of the financial information properties, Meltz said.

Besides the textbook and rating businesses, the company has an assortment of small information services and media outlets, some of which are doing much better than others.

Standard & Poor's has been criticized in Washington for cutting its triple-A rating on U.S. debt and for contributing to the financial crisis by wrongly rating mortgage securities with its top investment grades.

McGraw, 62, was not available for an interview.

(Reporting by David Henry; Additional reporting by Paritosh Bansal; Editing by Gary Hill)

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