Pearson sells 22% stake in Penguin Random House to Bertelsmann for $1bn

Publishing house Pearson said it was selling a 22% stake in Penguin Random House (PRH) to Bertelsmann for $1bn (£776m) to strengthen its balance sheet, with £300m ($386m) being returned to shareholders.

The company added that its future dividend policy will be to pay a “sustainable and progressive dividend that is comfortably covered by the earnings of our ongoing business excluding any contribution from PRH”.

After the deal Pearson will keep a 25% stake in PRH. As part of the agreement PRH will undertake a recapitalisation to 2 times net debt / earnings before interest, tax, depreciation and amortisation, distributing dividends to both partners.

In 2016, Pearson's 47% associate share in PRH contributed £129m after tax to its adjusted operating profit. Pearson reiterated its guidance for 2017. The company has previously stated that it expects PRH to contribute around £120m of after tax-adjusted profit to full year adjusted operating profit, which is expected to be in the range £570m-630 million, with earnings per share in the range of 48.5-55.5p.

Assuming the transaction closes in the anticipated timeframe we would expect a dilution of around 3p to 2017 earnings per share before any impact from the share buyback due to the loss of PRH's operating profit contribution in the seasonally important fourth quarter. The pro forma full year impact of the transaction after the share buyback to 2017 earnings is around 4p