Shares in education publisher Pearson jump 20% on hopes of private equity bid

Market value increases by nearly £1bn as Apollo considers improved cash offer after £6.4bn deal rejected

Pearson’s market value jumped by as much as a fifth after a US private equity group said it was considering making an improved cash offer following the educational publisher’s rejection of a potential deal worth more than £6.4bn.

News of the possible offer from Apollo sent shares in Pearson, which is finally emerging from a seven-year slump marked by a string of profit warnings and a record £2.6bn loss, up 20%, making it the top riser on the FTSE 100 on Friday.

“Apollo is in the preliminary stages of evaluating a possible cash offer by certain of Apollo’s affiliated funds for Pearson,” the private equity company said. “There can be no certainty that any offer will be made, nor as to the terms on which any such offer might be made.”

Pearson’s market value increased by nearly £1bn to £6bn after Apollo’s announcement. Apollo now has until 8 April to announce a firm intention to make an offer or to withdraw, according to UK takeover rules.

In a statement, Pearson said Apollo had made two offers – one in November and a second one on Monday – that its board unanimously rejected as “significantly undervaluing the company and its future prospects”.

The most recent offer of 854.2p a share, up from an original approach of 850p, values Pearson at about £6.46bn.

“The board is confident that the lifelong learning strategy set out in March 2021 will create sustainable, long-term value for Pearson stakeholders and that the results for 2021 demonstrated the building momentum as Pearson executes on this new strategic vision,” the company said. “The board is also mindful of its fiduciary duties in the event that an appropriate proposal is forthcoming.”

Pearson has been on a steady recovery path since being caught out by the seismic shift of students in the US, its biggest market, away from buying its new academic titles to snapping up secondhand titles and ebooks.

The shift to a digital-first model began under its previous chief executive, John Fallon, who stepped down in 2020 after almost eight years.

Its new head, Andy Bird, the former chair of Walt Disney’s operations, has doubled down on that approach, launching a Netflix-style subscription service, called Pearson+, at the heart of the company’s strategy.

Bird has said Pearson also plans to take advantage of the pandemic-induced “great resignation”, as more employees leave jobs and learn new skills.

Pearson reported an adjusted operating profit of £385m last year, an increase of a third over 2020.

Europe’s largest activist investor, Cevian, has a 10% stake in Pearson, making it the company’s biggest shareholder. In January, it emerged that Cevian is also building a stake in Vodafone.

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