Pearson to raise £776m by selling 22% stake in Penguin Random House

pearson penguin random house

Struggling FTSE 100 education publisher Pearson has agreed to sell a 22 per cent stake in Penguin Random House in a bid to raise around $1bn (£776m).

Pearson, which is in the middle of a series of restructuring efforts, said it would return £300m to shareholders through a share buyback after striking the deal with Germany’s Bertelsmann, reports the Telegraph.

Pearson will still hold a 25 per cent stake in Penguin Random House, which was formed in 2013 when Bertelsmann’s Random House merged with Penguin-owned Pearson.

The deal values the book publisher, which last year contributed £129m of profits after tax to Pearson’s balance sheet, at £2.8bn.

Investors initally welcomed the move, sending shares up 2.7 per cent in early trade, but the stock had fallen 2.2 per cent by 9:30am.

“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.

“Today’s deal enables Pearson to realise a significant amount of the value we have helped to create while 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.”

It comes months after an awful year for Pearson ended with a shareholder revolt over the pay package awarded to Mr Fallon.

Investors rejected the company’s remuneration report at its AGM in May after Mr Fallon received a £343,000 bonus despite the company having its worst year in almost half a century on the stock exchange.

Pearson has issued a long run of profit warnings following a decline in its core US higher education business, where there has been a move away from traditional textbooks and a fall in the number of students.