Pearson shares rise as it flogs a 22 per cent stake in Penguin

 
Emma Haslett
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Pearson has issued five profit warnings over four years (Source: Getty)

What's black and white and read increasingly in Germany? Penguin Random House, of course, after a 22 per cent stake in the publisher was sold to German media company Bertelsmann by Pearson today.

The $1bn (£776m) deal will leave Pearson, which in the past few years has sold both the FT and the Economist to combat sliding profits, with a 25 per cent stake in Penguin. Meanwhile, Bertelsmann's stake in the publisher rose to 75 per cent.

The deal will allow Pearson, which has issued five warnings in four years, to return £300m to shareholders while maintaining a "significant" income stream by maintaining that 25 per cent stake. The transaction values Penguin at $3.55bn and will complete in September, it added. Shares rose 2.2 per cent to 706p in early trading.

Last year Penguin contributed £129m in post-tax adjusted operating profit. Today it reiterated that it expects £120m from the publisher this year, while full-year profits for Pearson as a whole should fall between £57m and £630m.

"Combining Penguin with Random House has proved to be a great publishing success, as well as enabling some big cost savings," said John Fallon, Pearson's chief executive.

"This has benefited readers, authors, and shareholders. 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."

Read more: Here's what analysts are saying about Pearson's full-year results

Turnaround plan

In May shares in Pearson jumped 15 per cent after the publisher unveiled a raft of new cost-cutting measures designed to reduce its cost base by £300m a year by the end of 2019, as well as a strategic review of its US K12 courseware publishing business.

Meanwhile, first-quarter trading was in line with expectations, with sales increasing six per cent and net debt holding steady at £1.1bn.

That wasn't enough to convince shareholders to approve its plans for executive pay at its AGM in May: the remuneration report was defeated by a factor of almost two to one.

Read more: Pearson lays bare 2016 results after "challenging year"

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