The Pearson labyrinth

The media conglomerate has riches aplenty, but in refocusing its interests it is spoilt for choice

It Is, says one analyst, "the pounds 5bn question". Another calls it "Hobson's choice". A third , just to be different, calls it "the poisoned chalice". The subject is Pearson, and the question (or choice or chalice) is what future for the diverse media and leisure conglomerate?

The multitude of possible answers is no doubt keeping Pearson's new chief executive, Marjorie Scardino, awake at night. Her company has five main identifiable product areas: books, television, financial information, theme parks, and banking. Each contains assets that other companies would kill for. Penguin is pre-eminent in paperbacks; the Financial Times and The Economist hold the moral high ground in business journalism; Tussauds is consistently among London's most popular tourist attractions; Thames Television has an enviable library of TV classics; Lazards just came top of Europe's merger and acquisitions league table for 1996.

They should be a potent combination. A brand-led media and financial services conglomerate that has a multitude of cross-pollination prospects, has intellectual property coming out of its ears, and is active in growing markets. What more could a chief executive want?

The answer, according to investors and analysts, is a direction. The company began the process of deciding what it wanted to be under former chief executive Frank Barlow, who oversaw the disposal of Westminster Press and, earlier, Royal Doulton, as well as the reduction in Pearson's stake in BSkyB. In Scardino, and soon-to-be-appointed chairman Dennis Stevenson, the company has the opportunity to rewrite the script.

Some overdue editing work may already be going on. A sale of the company's 50 per cent stake in Lazards is predicted, and will unwind an anomalous, if profitable, arrangement that dates back to 1919. There is also the possibility that Pearson TV head Greg Dyke will be given the opportunity to buy his division out from under the corporate umbrella. And there are possibilities when it comes to honing the conglomerate into a leisure and entertainment group or a business information group.

More will be known in eight weeks' time, when Ms Scardino delivers Pearson's 1996 results. A positive trading statement just before Christmas has primed investors for some good news come March. They will be looking for a plan that will improve Pearson's undistinguished 9.4 per cent return on capital in 1995. They will also be looking for upbeat news on Channel 5, due for launch in April, which has had a difficult pre-natal period. And they will hope that Mindscape, the loss-making software division, does not have any more nasty surprises in store.

How will a Scardino shake-up affect investors? They, like her, face a complex decision as to how they perceive the company's future. If, say, Ms Scardino sold the book division and bought the business information company Bloomberg to merge with its FT Extel service, she would be swapping a low-priced, cash-generative asset for a high-priced one that will still need large cash injections to keep up with Reuters. Earnings would take a dive at first, giving any short-term investor the jitters. But in the long term, the company would have exchanged a low-margin, mature business for a high-margin growing one.

Slice the cake a different way: sell the Financial Times, The Economist stake, Extel et al, and buy Carlton to give a first-class distribution vehicle to Pearson's television production interests. Or sell the television interests, and buy more book companies and maybe even dip a toe into software again. The possibilities for chopping and changing the assets are so endless it could almost be a board game.

The problem Ms Scardino faces is that almost any strategy - including that of breaking the company up - is possible, and each has good and bad points. The difficulty with all of the disposal programmes is that Pearson could find itself saddled with a huge capital gains tax liability. And yet were she to disappoint the corporate financiers and keep the company as it is, minus the Lazards stake, and just concentrate on making the businesses work together, rather than separately, that too would be a strategy that rewarded shareholders - but not in a spectacular way.

This opens the door to the threat of a takeover, which will become more apparent if the market does not take to the Scardino initiatives and analysts get their calculators out to find that the company is one of the cheapest buys in media.

Ms Scardino started her tenure at the top of Pearson earlier this month by quoting General Douglas MacArthur: "Have a plan, execute it violently, and do it today." Wags have pointed out that at least MacArthur knew what he was planning for. Investors will be hoping that Ms Scardino not only has a plan to execute violently, but one which does not leave the media conglomerate fighting the wrong war.

Pearson

Share price 752.5p

Prospective p/e 25*

Gross dividend yield 2.8%

Year to 31 Dec 1993 1994 1995 1996* 1997*

Turnover (pounds bn) 1.87 1.55 1.83 2.18 2.20

Pre-tax profits (pounds m) 208 256 236 254 308

Earnings p/s (p) 27.9 34.1 28.8 29.7 37.0

Dividend p/s (p) 13 15 16.5 18 19.5

*Panmure Gordon forecasts

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific