Focus on Pearson: Scardino plays it by the book

The chief executive wants to double the company's value, and Simon & Schuster is the first big step
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The Independent Online
MARJORIE Scardino, chief executive of Pearson, says the company is considering listing shares in New York - appropriately, perhaps, as her latest acquisition means Pearson now gets more than half its profits from the United States.

For the moment, Ms Scardino's hands are full with the $4.6bn (pounds 2.8bn) takeover of publishers Simon & Schuster, part of the Viacom empire that includes Paramount Films and MTV.

The acquisition was applauded by analysts as the first big milestone in Ms Scardino's plan to restructure Pearson and double its value by 2002. A US share listing would reinforce the move to extend its brands internationally, including the Financial Times, and broaden the shareholder base, analysts said.

"We may seek a listing in America. This is something we are looking at not because institutional shareholders have trouble coming to this market - they don't - but we may want to become a retail stock [there]," said Ms Scardino. "We have a lot of employees in America and it's a real article of faith around here for staff to own stock. It's hard to do that with ADRs [American depository receipts]."

The US focus did not mean, she added, that the company would move to Dallas, her home town. But it is part of her plan to double the company's value by strengthening its core businesses - book publishing, TV and information services - and selling non-core units.

"If Pearson now believes the time is right for an American listing and developing an international following, I'd be generally supportive," said Tony Hardy, an investment manager at The Church Commissioners, the investment arm of the Church of England, which holds about 1 per cent of Pearson's stock.

Ms Scardino, the only woman at present running a FT-SE 100 company, is credited with engineering The Economist's 78 per cent growth in sales and 130 per cent increase in profits between 1992 and 1996.

The effectiveness of her plan to double Pearson's value will not be proved for some time yet, but the shares have risen 59 per cent since she presented it last August. They are the only leading light in the UK media index, which has under-performed the FT-SE 100 for the past year.

"She hasn't put a foot wrong so far," said John Hatherly, head of research at M&G. "There's been a refreshing change with the new management's focus on getting some shareholder value from a very diversified group."

Some analysts, however, question her devotion to the company's electronic information publishing business because Pearson can only ever be a small fish in that large pond. They would also like to see her overall strategy spelled out in more detail. Ms Scardino's focus on raising underlying margins, generating cash and reinvesting it for higher returns will achieve only so much, said Anthony de Larrinaga, media analyst at Panmure Gordon. "Until the Simon & Schuster deal, they were just tidying round the edges. They have to demonstrate they can grow the top line as well."

Ms Scardino made clear her intentions to take a new broom to Pearson last year when she had the company's Chateau Latour wine sold at Sotheby's. For the 50-year old Texan, that was a symbolic disposal that signalled the departure of the old guard.

"We were trying completely to change the face of Pearson and the attitude people had towards us and the attitude we had towards the outside world," said Ms Scardino. "The former Pearson strategy was much more an investment portfolio; you could own fine china, wine and a TV company in the same holding - I think we're now much more integrated than that."

The Simon & Schuster acquisition may raise regulatory problems by making Pearson the world's biggest educational publisher with nearly 40 per cent of the US adult education market. If it goes ahead, the company expects to get some $130m savings a year out of it.

But there is still some way to go. Ms Scardino took over a disparate mix of businesses at Pearson, which range from theme parks to Penguin Books and 50 per cent of the Lazard Brothers investment bank. The latter is also seen as another sale prospect.

Among the holdings already sold are the Mindscape educational software business (on which it took a loss of $350m), the 6.3 per cent stake in European satellite owner Societe Europeene des Satellites SA, and All- American Communications, a television company.

Analysts expect Pearson to raise at least pounds 700m from the sale of Madame Tussaud's, its remaining 4.3 per cent stake in British Sky Broadcasting Group and its holding in Flextech.

With 1997 net income of pounds 200m and sales of pounds 2.3bn, Pearson is too small to take on the likes of Time-Warner, or Rupert Murdoch's News Corporation. And there are weaknesses in Pearson's TV and electronic information businesses, which are seen as lacking the capacity to invest in the business, according to Mr de Larrinaga. The revenue from electronic publishing, at about pounds 150m, is one-tenth of the sum Reuters spends each year on research and development in the field, he added.

Even so, this, along with print publishing is an area Ms Scardino plans to beef up. "We'll be focusing on how to build market leading positions and the information business is a focus." Pearson is investing pounds 100m over five years to strengthen the Financial Times in the US and Europe."We'll carry on with that and with growing its electronic expansion," Ms Scardino said.