Pearson is selling its remaining 25% stake in Penguin Random House to Bertelsmann, as its c.e.o. John Fallon prepares to retire next year.
The disposal of PRH to its co-owning partner, which already had a 75% stake in the trade publisher, will generate net proceeds of roughly £530m, Pearson said. Shareholders will see a return through a £350m share buyback commencing in early 2020, with the deal expected to close in the first half of 2020. The deal will see Bertelsmann become sole owner of the world's biggest trade publishing group.
Outgoing Pearson c.e.o. Fallon said of the sale, part of an ongoing process of “simplification” for Pearson, that it enabled the company “to be completely focused” on its education and digital learning business.
The transaction puts a value on the PRH venture of $3.67bn, compared with the $3.55bn enterprise valuation in 2017 when Pearson sold a 22% stake in the joint venture. In 2018 PRH reported revenues of $3.7bn. The company’s total stake in PRH has generated about £1.9bn in net disposal proceeds and dividends for Pearson.
“For almost 50 years, Pearson has been proud to play our part in the publishing and commercial success of first Penguin and then more recently Penguin Random House,” said Fallon. “With the sale of our remaining stake to our partners, Bertelsmann, we know the company is in good hands—and we wish our colleagues and authors every future success. This enables Pearson now to be completely focused on building the world’s leading digital learning company, linking education to employability and skills, and reaching more learners around the world to support them through a lifetime of learning.”
Analyst Sarah Berenberg told The Bookseller: “While the disposal obviously means, short term, some cash return to shareholders, we think it increases the reliance on the other parts of the business, some of which have been performing very poorly. PRH has been a solid asset, which has provided ballast to Pearson. Given the ongoing challenges in the higher education market, which has impacted Pearson’s profits, we wonder why they are selling now.”
Thomas Rabe, chairman and c.e.o. of Bertelsmann and chairman of the board of directors at PRH, said: “The increase to 100% is a milestone for Bertelsmann. We will become the sole owner of the world’s biggest trade publishing group, which sets standards with its creative diversity, global marketing power, and commercial strength. We will continue to expand Penguin Random House in the coming years, through organic growth and acquisitions. The book business is part of Bertelsmann's identity. For us and our shareholders, the transaction is commercially attractive, as the share of Bertelsmann’s shareholders in group profit will increase by more than €70 million per year.”
Markus Dohle, c.e.o. of PRH and a member of the Bertelsmann executive board, added: “The full acquisition of Penguin Random House is a testament to Bertelsmann’s belief in the future of books and reading, as well as their trust in our colleagues around the world to be able to grow our company over the next several years. We are extremely well positioned to continue to take advantage of both organic and acquisitive growth opportunities in existing and new markets globally. I’m personally very excited to welcome the colleagues and authors of Germany’s Verlagsgruppe Random House into our global community of publishing imprints at Penguin Random House. With Bertelsmann bringing all of us together, we will further enhance our shared strengths.”
Over at Pearson, a process to find Fallon’s successor has now begun, with chair Sidney Taurel considering both internal and external candidates after Fallon announced his intention to the board to retire in 2020 following “an orderly transition”.
Fallon said, although there was “still a lot to do” and the company is “making good progress”, it was “time to transition to a new leader, who can bring a fresh perspective”.
His decision to depart follows a profits warning in September in wake of “weaker than expected” sales in its US higher education courseware division. Amid a phasing out of traditional print textbooks, and with the division responsible for contributing a quarter of its revenue, Fallon was forced to tell investors full-year earnings would be at the bottom of its guided range (£590m to £640m).
Fallon said: “There’s a lot still to do but we’re making good progress in navigating Pearson through a period of huge change. We’re now a much more efficient company, able to innovate more quickly and scale globally. We are investing more in our business than ever before and pioneering new forms of online education that link learning to employability. Over 75% of the company is now growing, as we work our way through a major industry-wide disruption in the other 25% of Pearson—US Higher Education Courseware. All of Pearson is now very well placed to meet the need for affordable and effective learning. I am deeply grateful for the commitment and dedication of my colleagues as we continue to help millions more learners prosper through a lifetime of learning.