The beleaguered FTSE 100 firm strengthens balance sheet by selling a 22% stake to Bertelsmann in deal valuing the publishing giant at $3.55bn.
Pearson has sold a 22% stake in Penguin Random House, the world’s biggest publisher, with titles ranging from Fifty Shades of Grey, Jamie Oliver and The Girl on the Train. The deal values Penguin at $3.55bn (£2.75bn).
Pearson put its holding in PRH up for sale in January after issuing a string of profit warnings in its educational publishing business, and has sold the stake to partner Bertelsmann.
The beleaguered FTSE 100 company, which will make almost $1bn from the sale of the stake, undertook a £2.4bn merger of Penguin with Random House in 2012, taking a 47% stake in the enlarged business. PRH is responsible for one in four books sold and the sale of 800m paper, digital and audiobooks every year.
Pearson, which reported the largest loss in its history in February, has sold the stake to strengthen its balance sheet and invest in its move to become a digital educational publisher. As well as the $968m proceeds from the sale Pearson will receive a further $66m in April, following a recapitalisation of PRH.
“The future of Pearson is as the world’s digital learning company,” said John Fallon, the chief executive of Pearson. “It is challenging, it is difficult. We need to make sure we can invest what we need to invest to make that digital transformation. I do think you need to see this particular move as a continuation of a strategy that goes right back to 2012. From the moment we combined Penguin with Random House and took a minority stake, from that point we made clear the strategic direction of the company.”
Fallon said the sale and recapitalisation will mean the company will make almost exactly the $1.1bn it would have got in an outright sale of the business back in 2012.
However, he added that the joint venture with Bertelsmann and staged exit has proved to be more beneficial as it has been more tax efficient and over the last five years the book publisher has returned £300m in dividends to Pearson.
Pearson said that it will return £300m to shareholders via a share buy-back process. The company has an 18-month lock-in period before it can consider any sale of the remaining 25% stake in Penguin Random House. Bertelsmann will again have the first option on buying Pearson’s final holding.
The sell down marks the beginning of its final exit from its once-considerable non-education publishing empire, which previously included the Financial Times and a 50% stake in the publisher of the Economist.