Struggling publishing group Pearson plc (LON:PSON) is to sell a 22% stake in Penguin Random House to Bertelsmann, lifting the German company’s stake to 75%.
Give or take a few bucks, the transaction will generate around US$1bn (£780mln) for Pearson, enabling it to strengthen its balance sheet and return some £300mln of surplus cash to shareholders through a share buyback programme.
The transaction values the entire Penguin Random House (PRH) joint venture at an enterprise value of US$3.55 billion. Pearson will retain a 25% stake in the book publisher.
As part of the agreement with Bertelsmann, PRH will undertake a phased recapitalisation so that its net debt will end up at twice its annual underlying earnings (EBITDA), which will entail distributing dividends to both partners.
Pearson will initially receive cash from the transaction of around US$968mln, followed by a further US$66mln in April 2018.
Pearson, which has been selling off businesses like they are going out of fashion (which some of them are) to focus on the educational market, said it expects the reduction of its stake in PRH to shave around 3p off this year’s earnings per share before any impact from the £300mln share buyback programme announced today.
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Pearson has previously indicated its intention to rebase its dividend – a City euphemism for cutting its dividend – to one that is comfortably covered by the core business excluding any contribution from PRH, but declined to give any clues in today’s announcement as to what that dividend might be; shareholders will have to wait until the group’s interim results are announced on 4 August to find out.
"Combining Penguin with Random House has proved to be a great publishing success, as well as enabling some big cost savings. This has benefited readers, authors, and shareholders,” claimed John Fallon, Pearson’s chief executive.
“Today's deal enables Pearson to realise a significant amount of the value we've helped to create whilst continuing to be part of the world's biggest and best trade publisher. We will use the proceeds to maintain our strong balance sheet, invest in our business and return £300m to shareholders," he said.
A conference call to discuss the deal will be held at 8.30 today, a recording of which will subsequently be available on the Pearson web site.