Struggling Pearson gets $1bn for 22pc of Penguin
Pearson has agreed to sell a 22pc stake in Penguin Random House to its partner in the publishing unit, majority owner Bertelsmann, for about $1bn (€870,000) in a deal that strengthens its balance sheet, while retaining some earnings from the profitable business.
After the sale, Pearson will return about $386m of surplus capital to shareholders through a share buyback. It will keep a 25pc stake in the iconic book publisher, Pearson said.
Shareholders suffered the biggest drop on record in January, when Pearson issued a profit warning and forecast years of gloom in the US market. It has since announced plans to cut costs by $385m by 2019.
The company, which is struggling in its main US education business, said at that time that it planned to sell its entire 47pc stake in Penguin Random House or recapitalise the business and extract a dividend.
The deal that resulted, valuing the Penguin Random House at $3.55bn, blended both options.
The venture, which publishes books from Irish writers including Roddy Doyle - who writes for the Irish Independent's Weekend magazine each Saturday - Sinéad Moriarty and Selina Guinness, will be recapitalised, distributing dividends to both partners.
"When we sat down with Bertelsmann, it quickly became apparent there was a third option not specifically provided for in the shareholder agreement that made much more sense for both parties," Pearson CEO John Fallon said. The company will use proceeds from the sale to invest in its digital transformation, he explained.
Pearson advanced as much as 3.3pc in London, its biggest gain in two months. The shares were up 2.5pc to 708 pence at 8.18am.
Retaining a 25pc stake limits the negative-earnings impact, which will be welcomed by shareholders, Tamsin Garrity, an analyst with Jefferies International, said in a research note.
Pearson gets most of its profit from education after already selling the 'Financial Times' and its half of the Economist Group.
The company announced a reorganisation last year as it seeks to address sluggish demand in its main education business, which has been hit by dwindling US college enrolments.
Pearson combined Penguin with Bertelsmann's Random House in 2013, leaving the British company owning just under half of the venture. Pearson Plc will allocate fewer resources to its dividend than some investors had expected. The cautious dividend plans suggest a lack of faith on the part of management in the company's financial strength. (Bloomberg)