British education publishing company Pearson has announced that it was in talks to sell its 50% stake in the Economist Group, the company that publishes The Economist, as it moves to focus exclusively on the education sector.
Ravi Somaiya, writing for The New York Times, reports that although the discussions are in process, there is no guarantee that a transaction will occur. Pearson owned the Financial Times as well, but last week sold it to the Japanese company Nikkei for a price tag of $1.3 billion. Pearson has stated that the company is focusing on its core target – education.
One report has suggested that the co-owners of The Economist Group may raise capital to buy out the Pearson portion of the company. According to Reuters, The Economist Group is significantly more profitable than the Financial Times. The other half of the company is owned by four wealthy families: the Cadburys, the Rothschilds, the Schroders, and the Agnellis. The company is private and some staff members control shares in the group.
Jonathan Marino of Business Insider writes that Pearson owns, but might sell, other media assets. The company owns a large minority portion of Penguin Random House. It is possible that the German media company Bertelsmann, which owns a majority portion of Penguin Random House, might attempt to buy out Pearson before the end of the year. In 2013, Pearson sold premium bankruptcy, distressed debt, and M&A reporting service Mergermarket to a private equity firm, BC Partners.
For the first time since 2011, Pearson will increase its earnings this year, which means the publishing company will return to growth. Reuters reports that sales for Pearson in North America rose 3% for this period, while Citi analysts had expected underlying sales in North America to be flat or down 1%.
Pearson has adapted in an attempt to meet the growing demand for online learning and more digital products, while British and US academic budgets have been shrinking because of cash-strapped governments. Analysts saw the ownership of the Financial Times by Pearson as unusual for a group that focused on education textbooks, testing and digital learning, but Pearson said the newspaper added about £24 million to the operating income of the company.
The selling of the newspaper also brought net proceeds of £600-650 million pounds, which, if used to pay debt, could cause small growth to earnings per share. The proceeds, says Finance Director Robin Freestone, will be used for maintaining a strong balance sheet, for investing, and for acquisitions.
BloombergBusiness' Manuel Baigorri, Kristen Schweizer, and Dinesh Nair report that the moves being made by Pearson toward getting out of the business publishing realm will help the company's education business gain strength. As the world's largest education company, it seems the company is committed to remaining a leader. Recently, the organization has lost contracts in the US, and its first half sales stagnated because textbook demand shrank and fewer students were enrolling in college.
"The market is telling them they have these very valuable business titles while education isn't yielding very much returns," according to Alex DeGroote, a media analyst at Peel Hunt LLP in London, who said he is skeptical about using the sale proceeds to invest in digital education or to repay debt.
Almost all of Pearson's profits come from education, but the company has struggled with job cuts and reorganization during the past two years. It plans on spending another £30 million this year, partly to increase its online offerings.