Market Report: Investors rattled by overhaul at Pearson

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The Independent Online

New Pearson chief executive John Fallon looks to be on a mission to reshape the education giant in dramatic fashion, but the market did not seem convinced by his plans for a sweeping reorganisation.

In a falling market, shares in Pearson tumbled by 48p, or nearly 4 per cent, to 1,217p after Mr Fallon unveiled the changes, which will see Will Ethridge , the education boss in North America, step down from the board.

Pearson, which also owns the Financial Times, will now have six department heads overseeing three global lines of business – school, higher education and professional – and three geographic regions: North America, "core" and "growth".

Mr Ethridge, 61, who will stay on until the end of 2013, had been widely seen as one of the four contenders in the race to succeed Dame Marjorie Scardino as chief executive of Pearson last year.

His departure means that now all three of Mr Fallon's erstwhile rivals will no longer be at the heart of the company as Rona Fairhead has quit and John Makinson is moving sideways as the Penguin books part of the Pearson empire is spun off.

Some observers raised eyebrows about Pearson's reorganisation as they wondered whether departmental bosses might clash because of overlapping responsibilities.

Others were more upbeat, with Giasone Salati of Espirito Santo bank said that the shake-up should steer Pearson "further into education services, digital and emerging markets whilst generating cost savings".

Mr Salati noted that the new structure will "mirror" that of consumer goods giants, which tend to have global product lines and manufacturing and sales divided by geography. "We do not believe that this management change is a sign of problems to come," said Mr Salati, noting that Mr Ethridge will remain as an adviser.

All but five stocks on the FTSE 100 ended the day down as the index of leading shares had its worst day in a year – dragged down 2 per cent by fears about the world economy. A slowdown in factory activity in China, and the suggestion from Ben Bernanke, chairman of the US Federal Reserve, that money-printing could soon end proved to be a toxic combination.

A dire day for Japan's Nikkei index, down 7 per cent, set the tone as hopes were frustrated that the Footsie could punch through to a new record after a near-relentless rise over the last month. "Given the storming start we've had to the year, a bit of profit taking at some point was inevitable," said Mike Ingram, market analyst at BGC Partners.

United Utilities, a defensive stock at the best of times, was one of the few risers on the FTSE 100, climbing 6p, to 787.5p as investors took heart from an increased dividend.

Among the mid-caps, the FTSE 250 wealth manager St James's Place took a real pounding – and one whose cause went beyond mere market pessimism. The stock plunged by 10.5 per cent after Lloyds Banking Group's boss, Antonio Horta Osorio, cut its stake in the wealth manager for the second time in three months.

The Black Horse bank, still 39 per cent owned by the state, sold off another £450m of shares. It first flogged a £520m stake in March. Today's sale – Lloyds placed 77 million shares at 580p each – reduces its holding to 21 per cent now, from 57 per cent at the start of the year. St James's shares ended the day down 57p at 573p.

Another FTSE 250 stalwart that got punished was the bicycle parts company Halfords, after it warned on profits and slashed the dividend to fund a three-year sales push. The shares were off a mighty 16 per cent, dropping 63p to 333.3p.

There was better news from the FTSE 250 computer software firm Aveva, which announced a £100m special dividend and was upbeat about the outlook, especially in Latin America. "It has leading market positions in attractive growth end markets," said analysts at Investec, which has a "buy" rating on the stock.

Aveva still gave up 21p to end the day at 2,303p, but it is still up more than 50 per cent on the year.

Down among the minnows, the AIM-listed oil explorer Nighthawk Energy surged 0.455p to 4.53p after it announced positive drilling results from its Big Sky 4-11 well in Mississippi.

The stock is up 22 per cent on the year, although still a fraction of the highs it reached in 2008.