Pearson backs up FT sale with premium on The Economist
Group buys back some of its own shares and amends ownership rules to ensure independence
After the shock news that Pearson had agreed to sell the Financial Times to Nikkei last month, the company has completed its exit of news publishing with a sale of The Economist.
Pearson, an FTSE-100 company that is focusing on its global education business, repeated the trick of selling above expectations. The sale price of £469m for its 50 per cent interest was well above the estimated figure of £400m.
The FT reports that the sale values The Economist at about £955m, well in excess of a previous £730m valuation from accountants Ernst and Young, and around the same price tag attached to fast-growing viral news service Buzzfeed.
The price represents a buyout multiple of about 15x last year's £60m operating profits, well below the 28x net sale price multiple implied by Nikkei's £844m buyout of the FT. This reflects the limited influence of owners at The Economist, which has a complex structure designed to preserve its independence.
The group says this deal will safeguard its editorial autonomy. Not only is it buying up £182m worth of the shares to hold in treasury on behalf of existing shareholders, but it is also seeking approval for new rules that will limit any owner's voting rights to 20 per cent and strengthen a rule preventing any single party from owning more than half of the company.
After the deal, the Agnelli family, through its investment vehicle Exor, will emerge as the largest shareholder, upping its stake from 5 per cent to a little more than 43 per cent after buying £287m worth of Pearson's interest.
After FT sale, buyer sought for 'byzantine' Economist stake
Pearson has confirmed that following the surprise sale of the Financial Times group to Japanese newspaper publisher Nikkei, it is in talks regarding an exit of its remaining 50 per cent shareholding in weekly newspaper The Economist.
The interest was excluded from the £844m sale last week, despite Pearson holding the Economist shares through the FT group. That omission may be explained by early reports on the prospective sale, which describe a business structured specifically to prevent owners exercising control.
Quartz goes as far as to describe the "ownership and control" structure as "byzantine". According to The Economist itself, Pearson's 'B' shares are a minority interest which give it the right to appoint six of the 13 members of the board of directors. Alongside these are 'A' shares with similar limitations owned by individual shareholders including the Cadbury, Rothschild, Schroder families, and 'ordinary' shares owned by employees, former staff and company founders.
Finally there are 'trust' shares owned by trustees, whose consent is needed for certain activities, including transfer of other shares and the approval of appointments for editor or chairman of The Economist.
The Financial Times says this structure has left Pearson able to do "very little" with its holding, and means that the valuation agreed for the FT itself will not be repeated for the second sale. Accountants at Ernst and Young value the business at £730m and people close to the talks have suggested with a premium the 50 per cent stake could be priced at £400m. But with profits of £60m compared to the FT's £24m this represents around half the multiple of earnings.
The BBC reports that the Agnelli family, which also controls a major stake in carmaker Fiat Chysler, could be set to increase its 4.7 per cent holding. However, this would imply a sale in parts as the family is unlikely to be allowed to – and has said it does not want to – control more than half of the shares.
FT sale: Did Nikkei overpay and what now for the pink'un?
It is a deal that has long been expected in the City, but its arrival still came as a surprise – and the identity of the buyer even more so.
Japanese financial newspaper group Nikkei, perhaps best known in the UK for the stock exchange that bears its name, yesterday agreed to buy the FT from Pearson for £844m. The paper had reported its most likely buyer was German group Axel Springer but in a report this morning it says the prospective suitor was pipped to the post in negotiations that "went down to the last ten minutes".
The consensus is that fraught negotiations yielded a very fruitful deal indeed for Pearson, which has owned the paper for 58 years but has been concentrating increasingly on its global education businesses.
A separate report in the FT cites Deutsche Bank calculations that suggest the sale proceeds represent 28 times the company's 2014 operating profit. Alex DeGroote, an analyst at Peel Hunt, told the paper: "I think you're worth at least half of that." That Pearson is hanging on to the FT's Southwark Bridge headquarters and its 50 per cent stake in The Economist only makes the price more impressive.
As Allister Heath notes in the Daily Telegraph, those figures are based on removing from the total deal value the £90m contribution Nikkei will make into the company's pension scheme, as well as £60m of tax and £19m of cash balances. The remaining £675m compares to profits of £24m last year, on sales of £344m. He says to "justify" that price Nikkei will need to "transform the FT and grow its digital business very substantially… in a difficult, hyper-competitive market."
How the new owners will pull off this feat has put many who value the FT's independent ethos and tone on edge. Elsewhere in the Telegraph Christopher Williams cites concerns over Nikkei's apparently overly-respectful tone towards business leaders, which has seen the Japanese financial newspaper group give only scant coverage to major corporate scandals.
In a leader column The Guardian echoed the sentiment, highlighting the $1.3bn accounting malpractice at Olympus that was actually broken by the FT, but not covered until much later by The Nikkei newspaper itself.However, the article also suggests the deal will be good for the pink'un, arguing that Nikkei, which boasts over 3m subscriptions in its home market and has a history of investment in its assets, could help to propel the FT's digital growth. "The better parts of each company's culture will come to influence the other," it adds.
FT sold to Japanese newspaper Nikkei
One of the media business's longest-standing rumours bore fruit today when global education business Pearson finally confirmed that it has ended its near 60-year ownership of the Financial Times Group,which has been sold to Japanese newspaper Nikkei for £844m.
Following an article on Bloomberg earlier this week, Reuters published a story this morning citing an unnamed source who said sale talks were underway with a "global, digital news company". The news prompted the FTSE 100 company to issue a statement confirming it was in "advanced" negotiations, which unleashed a wave of speculation on social media over the potential buyer.
The usual suspects were all present: US financial data and news service Bloomberg and Rupert Murdoch's News UK, which already owns The Times and The Sun, were among those frequently mentioned. More speculatively, some suggested that Amazon CEO Jeff Bezos could be a left-field option, having acquired the Washington Post in 2013.
Others, including The Guardian's National Editor Dan Sabbagh, even suggested that the outlet which broke the story could be the unnamed suitor.
But as the day wore on attention began to shift abroad. The BBC's Douglas Fraser tweeted that Axel Springer, the German group which owns Bild, Europe's largest newspaper by circulation and which has been on an acquisition spree recently, was among the most likely to do a deal.
That was apparently confirmed by several unnamed sources speaking to the Financial Times itself. According to its report, discussions with the German group have advanced most promisingly, but separate talks have also been held with Japanese media group Nikkei. It is these which have proved fruitful.
Initial reports suggested Pearson is looking for around £1bn, but analysts told Reuters this was "optimistic". The eventual sale price does not include the 50 per cent stake held by the FT in The Economist or the newspaper's headquarters in London, according to The Guardian. Nikkei will also make a contribution of about £90m to cover a deficit in the comapny pensions scheme.
Pearson shares rose 2 per cent to 1,236 pence in afternoon trading.