UK education publisher Pearson has rejected a £7bn takeover bid from private equity group Apollo, sending shares in the FTSE 100 group soaring.
In a statement on Friday, the board confirmed it had unanimously rejected an 854.2p offer made on March 7, saying it “significantly undervalued the company and its future prospects”. It also revealed that had rejected an earlier all-cash offer of 800p in November.
The statement came shortly after Apollo, the $481bn buyout group, publicly confirmed its pursuit of the Pearson, saying it was exploring an all-cash takeover that was in its preliminary stages.
Pearson said: “The Board is confident that the lifelong learning strategy set out in March 2021 will create sustainable, long-term value for Pearson stakeholders.”
The bids for Pearson would mark the latest attempt by private equity to acquire a large publicly traded UK business in recent years.
Flush with cash, investment groups such as Apollo have been hunting for bargains among FTSE 100 and FTSE 250 listed companies, as the UK stock market continues to trade at a discount to major regions.
Pearson shares rose by 18 per cent to £7.66 on Friday, giving its equity a value of £5.8bn. The company has net debt of about £500mn.
In announcing its potential bid, Apollo noted there was “no certainty” any offer would be made. Under UK takeover rules, Apollo must table a firm offer by April 8 or withdraw its interest and walk away for six months. Barclays is advising Apollo.
Andy Bird, Pearson’s chief executive since 2020, has pledged to transform the ailing textbook publisher and education testing group into a digital-first company providing learning materials beyond university, through a direct-to-consumer model.
Pearson reported an improving performance when it announced annual results last month, with adjusted operating profit up 33 per cent to £385mn.
Last year the group launched Pearson Plus, a subscription platform that Bird has compared to Spotify which gives access to textbooks and other materials for $14.99 a month.
Bird has also pledged to take advantage of a tight labour market and a desire to reskill by expanding into lifelong and in-work retraining. As part of this shift Pearson recently acquired Credly, a digital accreditation group, and Faethm, a workforce artificial intelligence and analytics company.
The drive to transform Pearson has come alongside increased pressure from activist investor Cevian, which has built a stake of 10.8 per cent in the company to become its largest shareholder. Cevian declined to comment.
In a report earlier this week, analysts at Citi said Pearson represented a “relative safe haven” for investors with significant cash returns and operating profit that offered a “decent buffer to margins should revenue disappoint”.
Last year Apollo sold McGraw Hill, a rival textbook publisher and education company targeting school, university and workplace markets, to Platinum Equity for $4.5bn.
In February Houghton Mifflin Harcourt, which provides educational materials for school-age children, was acquired by Veritas Capital in a $2.8bn deal.
In the time it was acquired by Apollo in 2013 to its sale, McGraw Hill shifted its focus from traditional textbooks to digital products, increasing the percentage of its revenue drawn from the latter from 25 per cent to 60 per cent.