RIVERDEEP, a Dublin-based online educational supplier, is expected to complete a $5 billion (€1.2 billion) merger with US publisher Houghton Mifflin within the next three weeks. This will make it the second-biggest deal in Irish corporate history.

Founder and chief executive Barry O’Callaghan is finalising financing plans for a reverse takeover of the 170-year-old publishing group from private-equity firms comprising Thomas H Lee, Bain Capital and Blackstone. The deal will be made up of a mixture of equity and debt.

The private-equity groups bought Houghton Mifflin from Vivendi Universal in December 2002 for $1.6 billion. In the current transaction, it will be valued at over $3.5 billion. The Boston-based company focuses on the same K-12, or kindergarten to 12th-grade, market as Riverdeep. Tony Lucki, president and chief executive of Houghton Mifflin, is a former non-executive director at Riverdeep.

The American company had net sales of $1.28 billion in 2005 and an operating profit of $60m. Figures for the six months to the end of June showed net sales from continuing operations of $454m, a fall of 1% on the same period of 2005.

O’Callaghan, 37, from Cork, is believed to be in advanced talks with a number of Irish and international financial institutions to provide debt for the deal. These include Credit Suisse First Boston, which has advised the company on other big financial transactions in recent years.

The Irish company, which itself is valued at more than $1.5 billion, is also expected to tap the high-net-worth private clients of the leading stockbrokers in Dublin.

The American school-book market is worth up to $7 billion and US schools have one of the highest PC penetration rates in the world.

O’Callaghan took Riverdeep off the Irish stock market in 2002. He now owns about 65%, having paid Pat McDonagh, the company’s founder, $120m for his stake. Private clients of Davy stockbrokers own about 20% while Riverdeep management own the balance.

Last year, McDonagh and O’Callaghan took $50m out of the company after a refinancing which raised $175m in mezzanine debt.

Riverdeep had earnings before interest, tax, depreciation and amortisation of $82m in the year to June 2006 from revenues of $330m.

In the context of an Irish company, this deal would be dwarfed only by the merger of Jefferson Smurfit Group and Netherlands-based peer Kappa Packaging in late 2005. That created a group with an enterprise value of more than €6 billion.