MEDIA group Pearson, owner of the Financial Times, Penguin books, Tussauds and Pearson TV, beat off the opposition to clinch a net #2200m deal to buy the bulk of publisher Simon & Schuster from US entertainment group Viacom.
The whole transaction, which is subject to regulatory approval, is worth #2800m, but Pearson will claw back #617,000 by selling part of the business to an American investment group.
The acquisition will make Pearson the world leader in educational publishing and was greeted with great enthusiasm in the market, where its shares closed up 81.5p at 1028p, having touched a record high of 1036p.
Earnings per share will be boosted in the first year and there are expected to be annual cost savings of #80m by the year 2000 from the integration of Simon & Schuster into Pearson's Addison Wesley Longman subsidiary. But it will also leave the company with hefty debts. Including the acquisition and other recent deals, Pearson said it would have pro forma net debt of roughly #2500m.
As a result, Pearson's chief executive, Marjorie Scardino, is expected to accelerate the sale of Pearson's non-core assets, a process which has so far reaped more than #650m.
Scardino said: ''Education is one of the great growth industries of our time. This is a tremendous opportunity to meet, in print and electronically, the growing demand of students of all ages and in all parts of the world for stimulating and effective educational programmes.''
One analyst said: ''The Simon & Schuster deal puts pressure on Pearson to do more disposals,'' and cited Pearson's minority stakes in pay-TV channel company Flextech and satellite broadcaster BSkyB as the most likely disposal candidates.
The company's estimated 4.5% stake in BSkyB could fetch about #320m, while its 4,800,000 shares in Flextech were valued at about #25m, analysts said.
In addition to asset disposals, Pearson said it would consider issuing equity of up to 10% of its share capital to help refinance its debt.
Since taking over as chief executive early last year, Scardino has focused on streamlining Pearson's mixed bag of assets, which also includes a stake in Lazards bank (50%), and US television soap Baywatch.
The Simon & Schuster acquisition reflects her strategy to make Pearson a major player in its three core areas - business information, television and entertainment, and educational publishing.
This strategy - coupled with Scardino's aggressive earnings goals - has propelled Pearson's share price over the past year, making it one of the top performers in the media sector.
Although most analysts agreed that Flextech and BSkyB were next in line for disposal, they were divided over the future of Pearson's stake in Lazards and the company's Tussauds Group entertainment division.
Regarding Lazards, Scardino has pointed out that owning part of an investment bank was not an ideal situation for a company which was seeking to focus on media.
However, many analysts argue that Pearson would have a hard time selling its Lazards stake at a premium since the bank's representatives also sit on Pearson's board.
''Lazards directors are unlikely to be willing to pay much of a premium for their own goodwill,'' one analyst said.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article