City: The day Pearson would like to forget

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The Independent Online
LAST Tuesday was a day Lord Blakenham, chairman of Pearson, will find hard to forget. It should have been a day of triumph for the media and banking group he runs; instead it turned into one of profound disappointment and embarrassment. Lord Blakenham and his managing director, Frank Barlow, tried to put as brave a face on it as they could; they held a press conference to announce they are spinning off their oil and Royal Doulton china businesses so that the group can concentrate on media and entertainment. But the deal that was meant to seal the strategy, the deal that would have transformed Pearson into a global media player - the acquisition of a controlling interest in Hong Kong's Star TV - was nowhere to be seen, snatched just hours earlier from before their very eyes by Rupert Murdoch. It was that failure, rather than the grand new strategy (which in any case seems to be coming about three years late), which the press and the City were determined to focus on.

Pearson is in many respects a good and well-run group with some wonderful businesses and brand names. But the spectacle of its executives being trumped by Mr Murdoch left you with the impression of a bunch of overly cautious amateurs - nice, harmless, charming enough people but naive, wet and wimpish, and somehow lacking in the nerve, aggression, imagination and killer instinct necessary to do business on the world stage. Certainly, they appeared to have no idea about how to deal with an inscrutable and powerful Chinese financier like Li Ka- shing, Star TV's proprietor. Pearson thought it had a deal, then suddenly it didn't any longer, and Mr Murdoch had. This was potentially the TV deal of the century, but Pearson allowed it to slip from its grasp largely, the City seems to believe, because of its own incompetence. Defeat was snatched from the jaws of victory.

To be fair on Pearson, there's a large element of unfairness and humbug in this analysis. In truth, Pearson was highly professional and thorough in the way it approached the Star transaction. It was reasonable for the company to assume that with Mr Murdoch apparently set on buying TVB, a terrestrial Hong Kong TV station, his interest in Star had waned. Mr Murdoch had also led everyone to believe he wasn't prepared to pay what Li Ka-shing wanted. And in any case, Pearson would never have done the deal Mr Murdoch eventually opted for, according to Mr Barlow. Pearson was prepared to offer roughly the same price share for share as Mr Murdoch, if not slightly more, but it wanted 70 per cent of the equity, it wanted Star to remain a private company and it wanted to lock Li Ka- shing in as an equity partner on the remaining 30 per cent - believing that his power and influence in mainland China would be essential if Star was to gain a foothold there. Mr Murdoch proved much more alive to Li Ka- shing's needs and desires, and he tailored the deal to suit them.

In truth, Li Ka-shing wants to distance himself from Star TV, whose success he already regards as a bit of an embarrassment. He believes it could become a positive liability for his other business interests once it starts pumping programmes into China. With the Pearson deal, Li Ka-shing would have continued to be strongly identified and associated with Star TV. He's much happier with a professional operator like Mr Murdoch to take the political flak that could start flying once China resumes control of Hong Kong in 1997. Whether Pearson would have shifted its ground had it known that Mr Murdoch was back at the negotiating table is anyone's guess. Mr Barlow claims not, but I wonder.

In the end, Pearson got used. It was used by Li Ka-shing to force Mr Murdoch, always the preferred partner, back to the table. And it was used by Li Ka-shing's adviser, John Thornton of Goldman Sachs, to up the ante. Why on earth the Pearson people ever thought they could trust any of them is something of a mystery. Some years ago, Li Ka-shing built up a substantial shareholding in Pearson and then sold it on to Mr Murdoch, who stalked the company relentlessly before moving on to other things. It was also not that long ago that Mr Murdoch stole the South China Morning Post from under Pearson's nose.

Pearson, I guess, must now turn its eyes back to Europe in search of expansion for its media interests, and can only dream about what might have been in Asia. For Mr Murdoch, Star TV in its own right would always have been a spectacular if somewhat risky opportunity. Throw in his other TV interests of BSkyB and Fox and you end up with a formidable and unique combination. No wonder stock market reaction is so favourable to the deal. After the dog days of the early 1990s, when Mr Murdoch came about as close to the brink as it's possible to get without actually falling off, he's back in deal-making, gambling form with the full backing of his bankers and shareholders. Perhaps the recession is over after all.