Pearson CEO Sells Remaining Penguin Stake as He Steps Down
Pearson CEO Sells Remaining Penguin Stake as He Steps Down
(Bloomberg) --
Pearson Plc’s Chief Executive John Fallon will step down in 2020 after a tumultuous seven-year tenure during which he transformed the publisher of news, novels and textbooks into an online learning specialist.
In what may be his final act, Pearson said it will sell its remaining 25% stake in the world’s biggest book publisher, Penguin Random House, to majority owner Bertelsmann SE for $675 million and will return 350 million pounds ($459 million) to shareholders through a share buyback.
In a statement, Fallon said it’s “time to transition to a new leader, who can bring a fresh perspective.” The shares rose as much as 5.3%, their biggest intraday gain in almost five months.
The former communications manager has survived multiple profit warnings as students abandoned Pearson’s textbooks in favor of digital learning tools. Falling U.S. college enrollment and a trend toward renting books have added to its difficulties. Pearson shares are now worth around half what they were when Fallon took over in January 2013.
The problems have been partly of Fallon’s making as he chose to double down on education, breaking up the broad-based media group established by his predecessor Marjorie Scardino.
The transition involved painful job cuts and the sale of the Financial Times newspaper, a stake in the Economist magazine and offices including the FT’s former headquarters in London. The paper’s digital subscriber base has swelled to a record of more than 1 million under its new owner, Nikkei Inc.
With the Bertelsmann deal, Pearson is ending a decades-old presence in fiction publishing, a business that’s held up more strongly in the digital era.
“The secular decline in U.S. higher education courseware is likely to continue, in our view,” said Bloomberg Intelligence analyst John Davies.
Specialist Niche
Skepticism toward Fallon’s digital-first strategy grew as investors waited for sales to recover. However, the board found no other viable plan for replacing the company’s core business.
The latest profit warning in September, driven by weak sales to U.S. universities, showed the long-promised turnaround is still for another day. Berenberg analyst Sarah Simon said a new round of price cuts may follow if Fallon’s successor tries to accelerate the restructuring -- steepening the company’s profit decline in the near term.
After a painful journey for investors, “the fruits of this restructuring are likely to benefit his successor,” Alex DeGroote, founder of DeGroote Consulting, said in an email. He said Fallon’s replacement probably won’t be a household name as Pearson now operates in a specialist niche, and it may be someone with a U.S. education background.
Book Giant
Bertelsmann has long been seen as the most likely buyer of the remaining Penguin Random House stake that Pearson had retained, after selling off a piece to the German media company for about $1 billion in 2017.
Pearson combined Penguin with Bertelsmann’s Random House in 2013, leaving the British company owning just under half of the venture. The merger created the world’s No. 1 book publisher of books from writers including John Grisham, Ken Follett and George R. R. Martin.
The deal gives Bertelsmann full control over the publisher, which releases more than 15,000 new titles a year. The media conglomerate is pursuing organic growth and looking at mergers and acquisitions to expand the business, including in the U.S., and Spanish-speaking markets as well as India and China, according to its CEO Thomas Rabe.
“Book publishing is part of Bertelsmann’s identity,” Rabe said on a call with reporters on Wednesday. “We expect to grow faster than the overall market and win more market share.”
--With assistance from Joe Mayes and Stefan Nicola.
To contact the reporter on this story: Thomas Pfeiffer in London at tpfeiffer3@bloomberg.net
To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Thomas Pfeiffer
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