Pearson rules out TV sale

Media group will swap UK Gold stake for holding in Flextech after deal with BBC
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The Independent Online
Pearson has ruled out the sale of its television business, dealing a blow to Greg Dyke's ambitions of leading a pounds 500m management buyout of the division.

Marjorie Scardino, Pearson's new chief executive, is understood to view the TV operations - which include Thames, Neighbours producer Grundy and a 25 per cent stake in Channel 5 - as central to the company's future.

The decision has been reached after a strategic review, more news of which is expected with Pearson's annual results tomorrow, and will heighten speculation about Mr Dyke's future as head of TV operations at the media and entertainment group.

Meanwhile, fast-growing cable TV operator Flextech will tomorrow announce a long-awaited joint venture to launch eight pay TV channels with the BBC.

In a pounds 275m deal struck on Friday night, Flextech will put around pounds 20m of its own money into the venture and guarantee pounds 120m of loans and credit facilities along with its parent, US cable giant TCI.

Flextech will also buy out the minority stakes in UK Gold and UK Living, held by Pearson, the BBC and Cox Entertainment of the US, in a deal that values the popular cable channels at just over pounds 130m.

The agreement is a blow to Rupert Murdoch's BSkyB, which tried to muscle in on the talks when they were announced last September.

The 50-50 joint venture secures Flextech and TCI 30 years' access to the BBC's vast programme library, which will be worth an estimated pounds 500m to the corporation over the first 10 years alone - for an outlay of just pounds 1,000.

Pearson will end up with a minority stake of just over 5 per cent in Flextech in return for its interest in the two cable channels.

The group has spent more than pounds 500m in building up its TV interests, which along with the Financial Times, Penguin, Longman and Heinemann publishing will remain with the group.

"Since we bought Thames in 1992, TV has been a core part of Pearson. We're certainly not casting TV off," a Pearson source said.

The company, however, remains keen to retain Mr Dyke's services in what will be the most challenging area for future growth.

To find the cash for investment, Ms Scardino is believed to favour the sale of the Tussauds Group, owners of Madame Tussauds and Alton Towers amusement park.

The sale of Pearson's stake in Lazard Brothers, its remaining 4.3 per cent stake in BSkyB and of Mindscape, the troublesome CD-Rom business it bought in 1993, are also on the cards in a rolling programme of disposals that could net over pounds 1bn.

Tomorrow's results will be marred by provisions of up to pounds 100m to cover an accounting fraud at Penguin in the US and extra start-up costs at Channel 5 - around pounds 60m against the pounds 37.5m budgeted.

After so many setbacks, Mrs Scardino is mindful that the company needs to move fast or face a long-mooted break-up bid. For fear of generating further disappointments, however, the company has consistently tried to play down speculation that she would be ready to announce the full results of the review tomorrow.

Practically every large UK media group has already run the slide rule over the company, including BSkyB, Granada, Carlton and Mirror Group, part owners of the Independent on Sunday.

Analysts currently place a break-up value of between 850p and 950p a share on the group, compared with its closing share price on Friday of 774p.