Media & Private Equity 20 Jan 2007 06:30 pm

Publisher Pearson Reported to be Private Equity Target

by Sean Hackbarth

Pearson logoFinancial Times logo

Billions pouring into private equity’s coffers gives the beast an insatiable appetite. For any non-Web 2.0 business financial salvation is hoping someone like Texas Pacific or Blackstone buys them. A rumor in the publishing world is the U.K.’s Pearson is on the selling block:

Shares in Pearson jumped more than 4 percent on Wednesday to their highest price since mid-2002 in hefty volume amid speculation over a private-equity buyout for the world’s largest educational publisher.

Details of a report in the weekly The Business magazine, due to be published on Thursday but noted by traders during the afternoon, singled out private-equity firm Kohlberg Kravis Roberts & Co. as a possible bidder.

A source familiar with the matter told Reuters, however, that KKR currently had no plans to bid for Pearson. The private-equity firm declined to comment.

KKR has “no plans” but all that means is their preliminary work isn’t finished.

The Business reports taking Pearson public would mean the sale of The Financial Times which could fetch just under $1 billion. News Corp., The New York Times, and Dow Jones could bite. The story notes analysts say Pearson’s academic publishing is its core which could mean it’s trade house Penguin could also be sold.

Last year The Economist (partly owned by Pearson) explained why private equity firms love media companies more than public markets:

Private-equity firms like media companies better than public markets do. Public markets love a growth story. Private equity appreciates cash flow. Radio and television stations and even newspapers throw off loads of cash, which private-equity firms can borrow against, using this leverage to repay their equity fast. That is true even of businesses whose cash flow is in long-term decline, such as newspapers, as long as the rate of decline is relatively predictable. The biggest risk in many of the current batch of deals is that the private-equity firms discover the cash-flow models to be less predictable than they thought, says Colin Blaydon of Tuck Business School’s Centre for the Study of Private Equity and Entrepreneurship.


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