Pearson Plc (PSO) shares led FTSE 100 shares higher Tuesday after it said it will sell a 22% stake in Penguin Random House as part of the group's effort to trim its balance sheet and return cash to shareholders.
The deal will see the educational publisher raise about $968 million from the sale of the Penguin Random House stake to its venture partner, Bertelsmann SE & Co KGaA, around £300 million ($386 million) of which will be redirected to shareholders through a buyback program. The group also said its future dividend policy would be "progressive" and "comfortably covered by the earnings of our ongoing business excluding any contribution" from the 25% stake it will continue to hold in Penguin Random House.
"Combining Penguin with Random House has proved to be a great publishing success, as well as enabling some big cost savings. This has benefited readers, authors, and shareholders," said CEO John Fallon. "Today's deal enables Pearson to realise a significant amount of the value we've helped to create whilst continuing to be part of the world's biggest and best trade publisher. We will use the proceeds to maintain our strong balance sheet, invest in our business and return £300 million to shareholders."
Pearson shares gained 2.35% in the opening minutes of London trading to change hands 705.8 pence each before falling more than 8.4% to 646 pence each later in the session as investors questioned the sale of such a high-performing asset.
Pearson added at the time it may sell all or part of its 47% stake in Penguin Random House and "use proceeds from this action to maintain a strong balance sheet; invest in our business; and return excess capital to shareholders whilst retaining an investment grade credit rating."