Pearson Inks Deal to Sell Financial Times to Nikkei

Jul 24, 2015

Pearson PLC on Thursday said it would sell FT Group, which includes the Financial Times newspaper, to Nikkei Inc. of Japan for £844 million ($1.32 billion).

The cash sale to the Japanese business publisher means Pearson is jettisoning one of its flagship media assets to sharpen its focus on its key education businesses.

For years, London-based Pearson—which generates about 60% of its sales in North America and three-quarters of its revenue from education—had rejected talk it would sell its salmon-colored, business-focused title.

However, Pearson Chief Executive John Fallon said Thursday afternoon that after nearly 60 years of ownership, “we’ve reached an inflection point in media, driven by the explosive growth of mobile and social. In this new environment, the best way to ensure the FT’s journalistic and commercial success is for it to be part of a global, digital news company.”

Shares in Pearson ended more than 2% higher in London.

The agreement doesn’t include FT Group’s London property at One Southwark Bridge or Pearson’s 50% stake in the Economist Group but does include its joint venture with Russian business newspaper Vedomosti. The transaction is subject to a number of regulatory approvals and is expected to close during the fourth quarter of 2015, Pearson said.

Pearson’s long-standing former chief executive, the American-born Marjorie Scardino, reshaped the company from a sprawling conglomerate that included the Madame Tussauds wax museums and a stake in a television production company into an education specialist.

But during her 16-year tenure, which ran through 2012, Ms. Scardino was clear that she would reject any proposal to separate Pearson and the Financial Times, which she once said would be sold “over my dead body.”

Mr. Fallon—a company veteran who led Pearson’s education businesses outside North America before succeeding Mrs. Scardino at the start of 2013—also has repeatedly called the news group and its growing readership integral to the company’s commercial and strategic vision.

Those past statements of intent from Pearson countered calls for the London-based company to sell the units and use the capital to advance its higher-growth education businesses, either by plowing investment into new digital teaching technologies or deals in emerging economies.

The Financial Times increased its circulation in 2014 by 10% year-over-year to almost 720,000 across print and online. Digital subscriptions rose 21% to almost 504,000—70% of the FT’s total paying audience.

Although Mr. Fallon had openly questioned the future of Pearson’s stake in the Economist Group, which publishes the Economist magazine, the company seems committed to keeping it for now. The publisher’s 2014 performance was hurt by currency effects, but the magazine’s circulation remains robust at 1.6 million, Pearson said in February.

“There are more logical owners than Pearson for what is an attractive, trophy asset,” said Mostyn Goodwin, an analyst at consulting firm OC&C Strategy Consultants, before the announcement of the deal with Nikkei. “The buyer will have acquired a powerful global brand with cut-through among both readers and advertisers—the killer combination in the current media landscape.”

For Nikkei, publisher of Japan’s largest business newspaper, the deal is by far its biggest overseas acquisition. For businesspeople in Japan, Nikkei’s flagship Nihon Keizai Shimbun daily is a must-read, far outclassing the nation’s general-news dailies in its reach among top executives even though its circulation of about three million copies is lower than those of several other Japanese dailies.

Still, Japan’s media culture is different in many ways from that in the West, which could raise challenges as the Nikkei moves to incorporate the Financial Times into its empire. Japanese media companies tend to be deferential to the companies and government bodies they cover. Foreign news organizations, including the FT, have on occasion been more aggressive in covering domestic Japanese scandals such as accounting improprieties uncovered in 2011 at Olympus Corp.

For Pearson, the sale of the FT comes after it has completed a two-year restructuring plan. While the initial costs of that crimped earnings, the changes are now saving Pearson hundreds of millions of dollars.

In February, Pearson reported a decline in net profit for 2014 to £470 million, compared with £538 million the year before. Adjusted operating profit, before restructuring charges, fell 5% to £720 million, in line with company forecasts.

Sales fell 4% to £4.87 billion, which was in line with market forecasts, with North America revenue down 3%. At the time it said growing digital circulation offset declines in print content and advertising, without giving figures.

Pearson also forecast that group sales this year, excluding acquisitions and disposals, will increase for the first time in five years amid a recovery of its core education markets, including the U.S. Its business there centers on teaching, testing and digital-learning technologies, including providing textbooks and software for schools and higher education.

However, Liberum analyst Ian Whittaker said the company’s education operations remain “deeply challenged.”

Pearson is set to report first-half earnings on Friday.

As well as focusing on its U.S. operations, Pearson has trained its gaze elsewhere overseas.

Amid flagging Western education markets, Pearson is bolstering its global presence with English-language schools, private higher-education campuses and digital classroom programs across high-growth international economies such as China, Brazil and South Africa, where learning among the middle class is booming.

Pearson’s changes in recent years follow a wave of digitization for its businesses.

The company’s core services are increasingly online. Ten years ago, two-thirds of what Pearson made and sold was in print, but now the same proportion of its business is a digital service, such as running English-language courses online. In 2014, 11 million students in the U.S. took the company’s tests on cellphones, tablets or laptops.

The announcement of the sale came hours after Pearson had said it was in advanced talks about a possible deal without naming a suitor, sparking speculation about the identity of the potential acquirer. Shortly before the deal announcement, the Financial Times itself and Germany’s Spiegel magazine reported online that Axel Springer SE was the likely buyer.

Springer had indeed been examining a potential acquisition of FT Group, Springer spokeswoman Edda Fels said Thursday. She declined to say whether the company placed a bid.

Springer, however, is known for financial prudence. The company last year was in the running to buy Forbes magazine, but the publication went to a group of investors. Ahead of the sale, Springer Chief Executive Mathias Döpfner said he wouldn’t “go hunting trophies” and said a reasonable price was at the top of the list of considerations in acquisitions, despite the foothold Forbes would have given the German company in the U.S.

Source: wsj.com