Media
FT and Economist changing ownership

Pearson in talks to sell Economist stake ... After FT sale, British education group looks to shed another media asset.

Burgess COMMENTARY

Peter Burgess

Pearson in talks to sell Economist stake ... After FT sale, British education group looks to shed another media asset. Pearson is in advanced talks to sell its 50 percent stake in the Economist magazine, the company confirmed on Saturday.

The British education giant acknowledged it was in discussions with the magazine’s board and trustees after POLITICO reported on its plans early Saturday morning.

Sources said the deal would be valued at about £500 million and the prospective buyer of the stake was described as a “diversified, western media company.”

The planned deal, which would come on the heels of Pearson’s sale of the Financial Times to Japan’s Nikkei earlier this week, would represent the 171-year-old U.K. group’s latest major divestiture as it seeks to focus on its core education business.

The price tag implies a value for the entire Economist Group of £1 billion, a multiple of 17 times the company’s annual operating earnings of £60 million. That’s about half the 35 times the FT’s operating profit that Nikkei agreed to pay Pearson. But in contrast to that sale, the Economist deal would not offer the buyer a controlling stake.

Pearson had hoped to announce the sale concurrently with the FT transaction and its half-year earnings this week, but last minute complications prevented it from doing so, according to a source.

The company declined to comment early Saturday, then issued a statement from a spokesman at midday: “Pearson confirms it is in discussions with The Economist Group Board and trustees regarding the potential sale of our 50% share in the Group. There is no certainty that this process will lead to a transaction.”

Founded in 1843 in London, the weekly “newspaper” as the Economist refers to itself, has long been an influential voice in global journalism, renowned for its sharp, often irreverent analysis of the world stage. Like the FT, the Economist is considered a trophy asset with an influence that outstrips its global circulation of 1.6 million.

The remaining 50 percent of the Economist not controlled by Pearson is owned by a diverse group of shareholders including Evelyn Robert Adrian de Rothschild, an heir to the banking dynasty and a former chairman of the magazine group. His wife, American-born Lynn Forester de Rothschild, is a member of the Economist’s board.

The Rothschild Group, the boutique M&A firm controlled by the family, advised Nikkei on its purchase of the FT.

Under a complex shareholder agreement, Pearson would have to obtain the approval of four trustees charged with preserving the magazine’s legacy and independence before transferring any shares to a different owner. That narrows considerably the pool of potential buyers.

Pearson was selective as to whom it sold the FT. According to a report in that newspaper, discussions were held with only five media companies that were considered suitable buyers: Bloomberg, Thomson Reuters, Vivendi, Axel Springer and Nikkei.

Earlier this year, Axel Springer looked into a purchase of the Economist stake as well as the FT but decided against bidding for the magazine, people familiar with the situation said.

Bloomberg, the financial data services firm controlled by former New York Mayor Michael Bloomberg, has long been seen a potential suitor for the Economist. Its top ranks include Economist alumni John Micklethwait, who was the magazine’s editor-in-chief before he was poached to head Bloomberg News in December, and Justin Smith, the CEO of the Bloomberg Media Group. Bloomberg, the company’s founder, is an unabashed fan of the magazine.

Google Chairman Eric Schmidt joined the board of the Economist Group in late 2013, prompting speculation that the Silicon Valley giant might one day have designs on the magazine.

Another member of the board, John Elkann, represents the Italian Agnelli family’s stake in the magazine. The Agnellis control Fiat and have various media holdings, including the Italian newspaper Corriere della Sera.

Nikkei won the bidding for the FT at the last minute, outmaneuvering Axel Springer, the German media group whose stable of assets includes a 50 percent stake in POLITICO’s European edition.

Springer offered about £750 million for the FT, compared to Nikkei’s winning bid of £844 million.

The auction went down to the wire on Thursday, with Pearson informing Springer after lunch that it had lost the auction. Springer, which had been in discussions with Pearson for about a year, was not given the chance to submit a higher bid, according to a person close to the sales process. Nikkei and Pearson announced the sale shortly thereafter.

Springer first approached Pearson about a year ago and initially discussed a more limited partnership, according to people familiar with the talks. As those discussions became more serious, Pearson signalled within the past six months that it might be willing to sell the entire stake in the FT. The negotiations on a sale began in earnest about six weeks ago.

This article was updated to include a statement from Pearson and additional reporting.

Authors: Matthew Karnitschnig and Alex Spence