Still digging

After FT, Pearson's challenge is existential

Pearson's $1.3 billion sale of the Financial Times is a proper page-turner. It is also the latest chapter of a multi-decade reinvention of a venerable London-listed company.

Samuel Pearson, a builder from England's northern county of Yorkshire, founded his eponymous construction company in 1844. It helped to dig London's Blackwall Tunnel under the Thames in the mid-1890s.

Diversification followed and a century later Pearson owned all or part of a menage of assets, including the Madame Tussauds waxworks in London. Back when investment banks were called merchant banks, Lazard was in the Pearson fold. Then came sales. The waxworks went in 1998 and Lazard in 2000. In 2011, Pearson offloaded its half of index compiler FTSE International. A year later it injected consumer publisher Penguin into a joint venture with Random House, owned by German publisher Bertelsmann.

There were also investments, primarily into texts and testing for schools and universities. Pearson's lines include HarperCollins Educational Publishing, bought in 1996, Addison-Wesley and Longman. In 2012, EmbanetCompass was purchased for $650 million to enhance the company's position in digital delivery.

The company now has a clear focus. The School division gave 46 per cent of sales in the half just gone, with Higher Education and Professional 29 per cent and 25 per cent respectively.

Pearson is a traditional British enterprise, but the company has become quite American. Half-year numbers published on July 24 show that North America contributed 60 per cent of group revenue and 58 per cent of adjusted operating profit. Thanks to seasonal factors, both those numbers are likely to be higher in the full year.

The FT Group, which contributed only around three per cent to adjusted operating profit, was the biggest anomaly in the Pearson portfolio. With it gone, shareholders will have some pertinent questions about how to organise the remaining assets, which carry an implied market capitalisation of around $14.5 billion.

To start, the London base looks outdated. More fundamentally, the educational assets might be better off in other hands. Pearson's next sale might be of itself - as a whole or in parts.