Faced with worse-than-expected results in its North American higher education publishing business, Pearson said this morning that it is putting its 47% stake in Penguin Random House up for sale. Pearson has held its share in PRH since it merged Penguin with Bertelsmann’s Random House in 2013, with Bertelsmann controlling a 53% stake in the giant trade publisher.
Pearson had been expected to sell its stake in PRH at some point, but the announcement of its decision today came as a surprise, as did the reason why it was putting its share on the market: Pearson’s acknowledgement that operating profits for 2016 will be below expectations and it will not hit is goal of £800 million in operating profits for 2018, the year Pearson said it expected its turnaround efforts to start bearing fruit.
Instead, Pearson reported that sales in the North American higher education market in 2016 were much worse than forecast, particularly in the fourth quarter, when revenue dropped 30% compared to the final period of 2015, leading to an 18% decline in the North American higher education group for 2016. Pearson added that while earlier it had anticipated that the North American higher education market would stabilize in 2017, it now expects further revenue declines in the year.
To meet the lower demand, Pearson said it will accelerate a number of efforts to meet the higher demand for digital products and textbook rentals. The company has already eliminated about 4,000 jobs as part of its effort to create a more streamlined company.
Following the Pearson announcement, Bertelsmann chief executive Thomas Rabe issued a statement saying the company is "open to increasing our stake in Penguin Random House, provided the financial terms are fair. Strategically this would not only strengthen one of our most important content businesses, it would also once further strengthen our presence in the United States, our second largest market.”
It is not clear if Bertelsmann would be interested in acquiring the full stake or only part of Pearson’s share of PRH. Pearson said it wants to divest the full stake, which could raise as much as £1.2 billion. If Bertelsmann doesn’t buy out the full 47%, Pearson is believed to be interested in finding an equity buyer for whatever shares are remaining.