August 12, 2015

Pearson sells 50 per cent Economist stake for £469m – Italian investment fund Exor emerges as largest shareholder

Pearson has announced the sale of its 50 per cent stake in The Economist for £469m. (Picture: Shutterstock)

Italian investment fund Exor is set to become the Economist Group's largest single shareholder after agreeing to buy 27.8 per cent of its ordinary shares for £227.5m and all of its B special shares for £59.5m.

Pearson's remaining ordinary shares will be repurchased by The Economist Group for £182m. This will see the group's existing shareholders' stakes increase by 25 per cent.

The deal comes after Pearson, which is now focusing on education rather than publishing, announced it was selling the Financial Times Group for £844m to Japanese company Nikkei.

The Economist Group said in a statement that the deal has secured the title's "editorial independence". It said Exor has shown "great respect for the culture and traditions of The Economist".

In 2014, The Economist Group – which comprises the magazine, Economist.com, the Economist Intelligence Unit, CQ Roll Call and TVC – contributed £21m to Pearson's operating income, the company said.

The deal means that Exor, which is run by Fiat founders the Agnelli family, has increased its stake in the Economist Group from 4.7 per cent to 43.4 per cent.

John Elkann, chairman and chief executive of Exor, and a non-executive director of The Economist, said: “By increasing our investment in The Economist we are delighted to affirm our role as one of the Group's long-term supportive shareholders, along with the Cadbury, Layton, Rothschild and Schroder families and other individual stable investors.

"We have always admired the editorial integrity and thoroughly global outlook that are the hallmarks of The Economist's success and we fully subscribe to its historic mission to 'take part in a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress’.

"Our strong belief in the merits of this investment is all the greater given The Economist's decision to join us, by investing in its own shares, which is a sign of its confidence in the Group’s exciting and profitable future.

"Together we are convinced of the huge potential that still lies ahead and particularly in The Economist’s ability to seize the many development opportunities linked to the digitisation of the media industry, under the leadership of Zanny Minton Beddoes and Chris Stibbs."

Pearson said in its statement that the sale must be approved by 75 per cent of the Economist Group's shareholders and its independent trustees. The deal is set to be completed in the last quarter of 2015.

Pearson chief executive John Fallon said: "Pearson is proud to have been a part of the Economist's success over the past 58 years, and our shareholders have benefited greatly from its growth. We have enjoyed supporting the company as it has built a global business, sustaining the excellence of its journalism and ensuring it is read more widely. We wish all our colleagues at The Economist every future success.

"Pearson is now 100% focused on our global education strategy. The world of education is changing rapidly and we see great opportunity to grow our business through increasing access to high quality learning globally."

Exor said the transaction has "the unanimous support" of the Economist Group's board of directors.

The company also said that an agreement has been made, subject to a shareholder vote, that the group's "Articles of Association" will be amended to limit the voting powers of any single shareholder to 20 per cent and to ensure that no one individual or company can own more than 50 per cent of shares.

It said: "The editorial values of the newspaper will continue to be overseen by its independent Trustees."

The company said: "Exor's investment in The Economist ‎is consistent with important long-term stakes held directly and indirectly in the media and publishing sector over the last decades, including Bantham Books, Random House, Le Monde, RCS MediaGroup, Italiana Editrice (La Stampa/Secolo XIX) and Banijay Group."

The Economist Group said in a statement that the deal, which will see it buy back 5.04m ordinary shares (20 per cent of total share capital), "will safeguard the independence of the company and crucially, the editrorial independence of The Economist".

Rupert Pennant-Rea, chairman of the Economist Group, said: “We have been blessed over many years to have had in the Financial Times and subsequently Pearson, a shareholder that understood and supported the ethos of the Group. We all owe them a considerable debt.

“With their decision to sell, the board’s priority was to secure the independence of the ownership of the Group and the continued editorial independence of The Economist. The strength of the Group’s balance sheet meant that we could reorganise our shares so as to reinforce our editorial independence and benefit our shareholders. The transaction has the full support of the Board, the trustees and the current editor of The Economist as well as her surviving predecessors.

“This agreement will also lead to the sale of the Economist Complex, which has served us well for many years. Now it will enable us to shore up an even greater asset, our independence. New offices, with more space for our digital ambitions and the needs of a 21st century media company, will be found for a new chapter in our history.

“The Board is also pleased to welcome Exor, an exemplary shareholder for the past six years, in its new role as the anchor investor in the Group. Exor has shown great respect for the culture and traditions of The Economist, underscored by its willingness to cap its voting rights.”

The Economist Group, like the Financial Times Group, is part of Pearson’s Professional division. Last month, Pearson’s half-year results showed that the Professional division recorded an adjusted operating profit of £38m for the six months, up year-on-year from £29m. Its turnover was £553m, up from £519m.

According to the results, the Economist Group made an increased contribution "as growth in circulation, custom research and marketing services revenues offset declines in print advertising".

The magazine's global circulation remained at 1.6m, according to Pearson, level with the last two years. The publisher said that the Economist saw a 57 per cent increase in "subscribers choosing digital packages".

Pearson also revealed that the magazine's Espresso app, launched at the end of 2014, has been downloaded more than 800,000 times. In April, the group launched the Economist Global Business Review, an English-Chinese smartphone app. Pearson said this was its first bilingual product.

The UK edition of The Economist recorded an average weekly circulation of 223 ,915 in the second half of 2014, according to ABC, up 1.3 per cent. Nearly a quarter of this circulation is made up of free bulk copies.

The FT has owned half of The Economist since 1928, and Pearson has owned the FT since 1957.