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AP/Hussein Malla
Not the usual sale.
TRUST ISSUES

Pearson wants to sell The Economist too, but has to deal with its baroque ownership structure

By Max Nisen

Days after its $1.3 billion sale of the Financial Times, Pearson is looking to sell off its portion of the Economist Group as it transitions to being a purely education-focused company, the FT itself reports (paywall). Even though there was a bit of drama with the sale of the FT–rival bidder Axel Springer reportedly didn’t find out it lost out to Nikkei until minutes before the deal was announced–it was a piece of cake compared to what a sale of The Economist would entail.

Any buyer would gain a premium and profitable company, but almost no control of it, and would have to contend with a potential veto from Baroness Bottomley of Nettlestone.

Pearson confirmed that it was in talks, noting, “There is no certainty that this process will lead to a transaction.” Pearson owned the FT outright, but it only owns half of the Economist Group, and owns that as part of an ownership and control scheme that can only be described as byzantine.

The other half is owned by a group of individual shareholders, which include scions of the Rothschild and Schroder banking dynasties, the Cadbury family, and the Agnelli family (which controls Fiat), who have been making noise about buying Pearson out for years.

John Elkann, the heir to the Agnelli fortune, is reportedly leading a buyout attempt by existing shareholders.

Pearson owns only “B” shares in the company, which gives it only six of 13 board seats and no real control. So if the buyer is not one of—or some consortium of—those individual shareholders (who own “A” shares), they’ll have to live with the idea of not having much in the way of economic and management control, in addition to a lack of editorial influence.

And that’s not the end of it. There’s also a separate group of “trust” shares, held by a group of four trustees, including the previously mentioned Baroness Bottomley of Nettlestone, Tim Clark, Lord O’Donnell, and Bryan Sanderson, which exist to guarantee ownership and editorial independence. Any transfer of “A” or “B” shares requires their approval. They’re wholly independent of the company’s board, and must approve the appointment of the group’s chairman and The Economist’s editor. 

That combination of issues has reportedly scared off some potential buyers (paywall), including Bloomberg, Reuters, and Axel Springer, and helps explain why Pearson’s 50% stake is valued at about half of what the FT fetched, despite the fact that the Economist is more than twice as profitable.

Prices in the $500 million range are being quoted for the 50% in the group, which includes The Economist magazine along with an events business, Congressional Quarterly and Roll Call, and the Economist Intelligence Unit.

There’s also the company’s Mayfair headquarters in London—”the tower,” to staffers—which would be worth over £100 million on the open market, according to the group’s annual report (pdf). Only the self-styled “newspaper’s” editorial staff remain there, with the rest of the company in London in Canary Wharf.