Pearson nets pounds 305m for Westminster

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The Independent Online
Pearson, the media and entertainment giant, yesterday took the sting out of poor interim profits by unveiling the sale of its regional newspaper group, Westminster Press, for pounds 305m - marginally ahead of City expectations.

The sale, to aggressive regional newspaper publisher Newsquest, marks a continuation of Pearson's move from "traditional to screen-based media," Lord Blakenham, chairman, said yesterday. The company also announced the purchase of another 30 per cent of Les Recoletos, the Spanish media concern, taking its share to 95 per cent at a cost of pounds 86.8m.

But while media analysts cheered the deals, there was still disappointment over the company's continuing problems with its US CD-Rom subsidiary, Mindscape, and some concern about the ballooning costs associated with retuning millions of VCRs in advance of the launch of Channel 5, in which Pearson has a 24 per cent stake.

Pre-tax profits slid 40 per cent in the first half of 1996, to just pounds 30m from pounds 50m last time, largely on the effects of the poor performance of Mindscape, which had been widely trailed. Underlying results were in line with most estimates, and the shares climbed 19p to 630p, as the market breathed a sigh of relief.

The education unit, which includes the newly purchased HarperCollins Educational Publishing, posted seasonal losses, but was on track for a strong performance in the second half of the year. Pearson Television had a strong half, helped by sales by its Grundy Worldwide and Thames Television subsidiaries.

Penguin Books had a good half, particularly in the US. Pearson yesterday announced the appointment of Michael Lynton, former head of Hollywood Pictures, a Disney subsidiary, as chief executive of Penguin worldwide.

"This doesn't take the pressure off management," said one analyst. "In a way, it might have been better if the results had been terrible or very good."

Pearson's management has come under intense scrutiny in recent months, as the City awaits signs the conglomerate would seek to maximise shareholder value, perhaps by selling off the highly rated television arm.

Institutional shareholders have also been asking Pearson to confirm succession plans following the planned retirement of managing director Frank Barlow.

Headhunters have been appointed, and they are looking at both internal and external candidates, Lord Blakenham confirmed yesterday.

The sale of Westminster Press generated a cash price equal to just over two times revenues - similar to recent deals in the sector. Pearson is to keep WP's 9 per cent stake in Press Association, as well as a pounds 8m surplus in the pension fund.

Newsquest was backed by KKR, the leveraged buy out specialists and Cinven, the media venture capital group. Both finance companies said they would continue to look for opportunities in the regional newspaper market.

KKR, which backed Newsquest's management-led buyout of Reed Regional Newspaper early this year, said: "We see this business as highly cash generative, and we have a fabulous management team."

Jim Brown, Newsquest's chief executive, said he planned to keep all 60 Westminster Press titles, although some might require extra investment.

"Some are very modern, and others are rather long in the tooth. We'll take some time to sort them out." However, further acquisitions have not been ruled out.

Newsquest beat a competing offer from Mirror Group and Tony O'Reilly's Independent Newspapers, which presented a sweetened bid of pounds 310m over the weekend. This was to include the pension surplus and the PA shares, valued at pounds 3.8m, meaning that the Newsquest offer was slightly higher.

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