Could Pearson Sell the Financial Times?

Now that The Washington Post is in the hands of Jeff Bezos some $250 million later, could Pearson  (NYSE: PSO  ) again be thinking of unloading the Financial Times? John Fallon, who replaced Marjorie Scardino as Pearson CEO in January, doesn't appear as devoted to the financial newspaper as his predecessor. Scardino, for instance, vowed only to rid Pearson of the reportedly struggling financial newspaper over her dead body. 

Pearson, an education publisher, just shed financial news publisher Mergermarket to private equity firm  BC Partners, with $16.3 billion in assets under management, in a £382 million ($622.7 million) transaction. (Pearson paid £101 million plus an earn-out of less than £29 million for Mergermarket in 2006.) Mergermarket wasn't a core asset, and Pearson wants to keep its focus on education.

"The transaction provides us with additional financial capacity to accelerate our push into digital learning, educational services and emerging markets," said Fallon in a press release.

Does the FT still fit?
So what does this mean for the Financial Times? How does it fit into a "digital learning, educational services" strategy? Pearson insists Financial Times, which along with The Economist (and previously Mergermarket) is part of the FT Group, isn't on the block, according to The New York Times Dealbook. And in its 2012 annual report, Pearson identifies Financial Times as its vehicle to pursue the business education market, making the financial newspaper a core asset.

Nonetheless, Pearson is in the middle of a restructuring, one in which it's shedding non-core assets and making the shift from print to digital, and you can't discount the possibility of a sale of the FT. In its mid-2013 financial report, Pearson said: 

We expect the FT Group to benefit from continued growth in digital and subscription revenues in 2013 but advertising to remain weak and volatile with profits reflecting further actions to accelerate the shift from print to digital. 

And no matter how much you might love your salmon-colored FT newspaper, the truth of the matter is that print is a dying breed. On the plus side, Pearson continues to see growth in digital subscribers. In 2012, the number of Financial Times' digital subscribers  grew by 18% to 316,000 and the company has some 3.5 million app users. Last year, the number of online subscribers exceeded print subscribers for the first time, and the company has a combined (print + online) paid circulation of 602,000.

Breaking it down
In 2012, the FT Group generated £443 million in sales, up 4% from 2011 levels. But profits fell 36% to £49 million as a result of the fact that index provider FTSE International was no longer part of Pearson's portfolio amid the company's sale of its holding. Does this mean that in 2014 Pearson will experience declining profits and point to the sale of Mergermarket? 

The FT Group, per Liberum Capital estimates, are valued at approximately £647 million, which is broken down as £400 million for the FT and £247 million for The Economist. Pearson sold Mergermarket for £382 million, which is slightly above the consensus valuation.

And despite some analyst buzz as recently as a few months ago surrounding the possible sale of the FT Group, those rumors have been quelled for the time being. But Pearson may find that its shareholders are disappointed with the fact that there does not appear to be a plan to return any of the cash from the Mergermarket sale to investors directly. Instead the company intends to invest in digital publishing and education. 

So if there is enough of an investor backlash, Pearson could theoretically rethink a sale of the FT Group. But analysts say that selling The Economist would be a more complex undertaking than unloading Financial Times because of certain ownership terms. And if shareholders clamor enough, the potential sale of Financial Times could be back on the table. 

Deja vu
Should Pearson decide to put FT on the block, and word on the Street a year ago was that the company had unofficially tasked investment bankers with scouting offers for the business newspaper, would anyone want to buy a brand that is synonymous with the dinosaur that print media has become? 

When scuttlebutt of an FT sale surfaced last year, reports suggested that the publication could fetch a valuation of up to 37 times this year's projected earnings before interest, taxes, and depreciation, or as much as £1 billion, according to The Telegraph. But that was the reported asking price, not any offer price. 

Media and financial juggernaut Bloomberg was named as the likely buyer at the time, and such a combination wouldn't be that much of a stretch. But Bloomberg founder Michael Bloomberg, with a reported net worth of $31 billion, has an affinity for the FT Group closely tied to The Economist, reports say (although the former trader also reads the FT), and as mentioned a straight-forward sale of that magazine is complicated. Another name that has been tossed in the rink as potential bidder is Bloomberg-rival Thomson Reuters.  

Indeed, in a world where the chief executive of an online retailer is now running one of the most traditional newspapers with 80 years of family ownership behind it, you can't discount the possibility that the FT could be next. It is pure speculation, but perhaps Virgin Media founder Sir Richard Branson would be interested.

Branson, worth a reported $4.6 billion, remains a full-fledged entrepreneur with the recent launch of Virgin Galactic, which is owned by Virgin Group and Aabar Investments PJS in Abu Dhabi, has at a quarter-million dollars a pop flights scheduled for space in 2014.And he and Bezos might have more in common than you think. Bezos' outer space company, Blue Origin, is similarly making plans to send passengers into space. 

While Pearson hasn't officially put the FT on the block, that doesn't mean it isn't for sale. Everything has its price and it seems as though Pearson may be holding out for the big one. 

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