Pearson on track to buy `Thomas'

Pearson, the media-to-entertainment conglomerate, has emerged as the front runner to buy the children's book division of Reed, according to industry sources. The division is famous for publishing children's favourites such as Winnie the Pooh and Thomas the Tank Engine and Pearson is keen to marry the business with its Penguin books subsidiary.

It would be Pearson's first UK acquisition under Marjorie Scardino, the group's new chief executive, who earlier this week vowed to double the size of the company within five years. The deal is likely to kickstart a period of frenetic corporate activity at Pearson. Ms Scardino is intent on launching an upheaval of the group, which encompasses the Financial Times, Madame Tussauds and investment bank Lazards.

Thomas the Tank Engine, famous for colourful characters such as the Fat Controller, was created more than 50 years ago by Reverend Awdry, who died earlier this year, for his son Christopher. AA Milne's character Winnie the Pooh, which was inspired by a bear from London Zoo, and playmates Eeyore the donkey and Tigger have captivated children for even longer.

Reed owns the UK publishing rights to Winnie the Pooh and Thomas but Disney and Britt Allcroft respectively own some of the international and merchandising rights. Michael Lynton, the new head of Penguin who used to work at Disney, is thought to be keen to work with these companies to exploit the characters' commercial potential.

According to the sources, Pearson is the only bidder left in the running for Reed's business and is keen to tie up a deal by the end of the month. Publishing rival Dorling Kindersley is believed to have cast an eye over the business, but recently pulled out of the race. Analysts believe the business generates annual turnover of around pounds 30m and could fetch up to pounds 50m.

Pearson declined to comment.