$3.6 Billion Acquisition to Create World's Leading Education Business

Proposed acquisition of Simon & Schuster education divisions from Viacom for a net price of $3.6bn - after selling Reference and Business & Professional divisions to Hicks, Muse, Tate & Furst Incorporated for $1bn

  • Combination of Simon & Schuster education and Addison Wesley Longman creates world's leading education business
  • Value creating acquisition which will significantly enhance adjusted earnings in the first full year
  • Strong platform for growth in rapidly expanding global education market
  • Integration of the businesses will deliver annual cost savings of $130m by 2000
  • Initial financing through new $6bn group banking facilities Refinancing options include capital markets, disposals and new equity issuance

Commenting on the acquisition, Pearson's chief executive, Marjorie Scardino, said:

"Education is one of the great growth industries of our time. This is a tremendous opportunity to meet, in print and electronically, the growing demand of students of all ages and in all parts of the world for stimulating and effective educational programmes. It is an earnings - enhancing and value - creating step in our strategy of focusing our resources on businesses where we have a market leading position. Creating the world's leading education business certainly fits the strategic bill."

Peter Jovanovich, chief executive of Addison Wesley Longman, who will be CEO of the new combined business, said: "Both companies have long and fine traditions of helping teach, enlighten and enrich children, young adults and professionals in the United States and throughout the world. The combination of the professional, intellectual, editorial and financial resources of our two companies means that we will be able to take this work forward even more effectively in the future."

ENQUIRIES: 0171 411 2310

Marjorie Scardino, chief executive

John Makinson, finance director

John Fallon, communications director


Pearson plc, the international media group, announces it has signed an agreement with Viacom for the purchase of Simon & Schuster's Education, Reference and Business & Professional publishing divisions for $4.6bn. In 1997, these divisions had sales of $1.9bn, operating profits of $261m and net assets at 31st December of $858m.

Pearson has entered into a preliminary agreement to sell to Hicks, Muse, Tate & Furst Inc, (Hicks Muse) a leading US based private investment firm, the Reference and Business & Professional publishing divisions for around $1bn. Under the agreement, Pearson will continue to distribute their products outside the US.

In 1997, the divisions being retained by Pearson had unaudited sales of $1.4bn and made operating profits of $210m.

Pearson will combine the Simon & Schuster education divisions with Addison Wesley Longman to form the world's leading international education business. This will create a highly innovative, competitive and dynamic educational publisher capable of seizing the exciting opportunities offered by the fast growing global education market. The combination of the two businesses is expected to achieve synergies and economies of scale that will deliver annual savings of $130m by the year 2000. It will significantly enhance Pearson's adjusted earnings from the first full year and will earn a return in excess of Pearson's cost of capital.

Initial financing for the acquisition will be met by $6bn of new bank facilities which will also be used to refinance existing facilities. Pearson anticipates that the transaction will be completed in the second half of 1998 subject to regulatory approvals, including the expiration of the Hart-Scott-Rodino waiting period in the US, and the consent of Pearson's shareholders. Pearson will send a circular to shareholders shortly to explain why the Board unanimously supports the acquisition, and to seek their approval at an extraordinary general meeting expected to be held in July.


The global market in educational materials and programmes has been growing at a strong rate, consistently outstripping GDP growth. This growth is driven by favourable demographics; increased spending by governments, parents and students; a worldwide drive to improve educational standards; the increasing application of computers in schools and colleges; a greater priority being given to public education in developing economies; and increasing demand to learn English.

The largest single market is the US, where some $7bn was spent on printed and electronic education materials in elementary, secondary and higher education in 1997. Outside the US, the international market in English language educational materials generates total revenues of around $16bn a year. Pearson management expects both markets to grow by some 10% a year.


Simon & Schuster provides educational materials in a variety of media for students from pre-school through to adult learning.

Its US school division, through the Silver Burdett Ginn and Prentice Hall School imprints, publishes K-12 school texts for all major disciplines in elementary and middle/high schools. It is the world leader in educational technology through the Computer Curriculum Corporation (CCC) business. Globe Fearon and Modern Curriculum Press (MCP) publish supplemental materials, especially for middle and high school students and teachers.

Simon & Schuster is also the world's leading higher education business, serving the college and adult learning markets in the US and internationally with print, electronic and distributed learning products. Prentice Hall and Allyn & Bacon publish texts and related products in the major disciplines. Adult education imprints range from English as a second language (ESL) to career development and technical publications for institutional programmes. An extensive backlist is the mainstay of the business, providing 85% of sales.


Addison Wesley Longman (AWL), owned by Pearson, is a global educational publisher, selling books, multimedia and learning programmes in major academic disciplines to the primary, secondary, higher education and professional markets throughout the world. In 1997, it made operating profits of $98m on sales of $924m. Its chief executive, Peter Jovanovich, who joined the Group in September 1997, was previously president of McGraw-Hill's Education and Publishing Group.

AWL's US school publishing group publishes materials and programmes for the K-12 school market under the Scott Foresman-Addison Wesley imprints. The group's publishing strengths are in reading, language arts, social studies, mathematics and science. It also has an electronic education division and a supplementary publishing group.

AWL's higher education group publishes books and multimedia products in many academic subjects for the US and international college markets through the Addison-Wesley, Longman, and Benjamin Cummings imprints.

Its Longman English Language Teaching (ELT) business is a leading publisher of ELT materials in the world. In addition, its international group has a local language publishing presence as well as selling books and products from the AWL group all over the world.


The combination of Simon & Schuster's education divisions and AWL will create the world's leading education business. It will be broadly based with extensive intellectual property rights, strong brands and internationally competitive positions. This will provide a solid platform from which to capitalise on the exciting growth opportunities both in the US and international education markets.

US School

The US school business, bringing together brands that are highly respected in classrooms throughout the US - Scott Foresman, Addison Wesley, Prentice Hall School and Silver Burdett Ginn - will be one of the leading US school publishers. Their complementary strengths will allow the newly combined business:

  • to extend its range to cover all core disciplines throughout the elementary and secondary school sector;
  • to extend its reach by having sufficient critical mass to support separate sales forces for elementary and secondary schools, enabling it to compete more effectively;
  • and to benefit from a stronger backlist which should lift profits in the shorter term while full subject coverage and scale will drive sales growth in the longer term.

    US Higher Education

    The US college business will be the largest higher educational publisher in the US. It will:

    • be able to capitalise on the benefits of publishing four of the most highly respected imprints in higher education - Prentice Hall, Allyn & Bacon, Addison-Wesley and Benjamin Cummings;
    • cover a comprehensive and complementary range of subjects and disciplines;
    • and be built around the management and business strengths of Prentice Hall, with its editorial focus on high quality and profitable publishing.


    Outside the US, the combined business will be the leading international educational publisher, with complementary strengths that will enable it to capitalise on a range of opportunities for growth:

    • AWL is the world's leading ELT business while Simon & Schuster leads the world in higher education;
    • AWL's local language publishing infrastructure will be matched by Simon & Schuster's strengths in the translation and export of US programmes;
    • and AWL's strong customer base in Asia and Europe complements Simon & Schuster's strong presence in Latin America.

    Learning through technology

    In educational technology, the combined business will be the global leader of a market which is taking an increasing share of total educational spending:

    • in schools, it will be able to build on a world leading position in providing electronic media for classrooms;
    • and in higher education, it will be able to expand its already extensive Internet and technology capability both to augment textbooks and to provide unique teaching solutions.


    Upon completion of the acquisition, the combined businesses will be managed under the leadership of Peter Jovanovich, who reports directly to Pearson's chief executive, Marjorie Scardino. The new senior management team will be drawn from AWL and the Simon & Schuster divisions. Both management teams have substantial experience in the integration and running of educational publishing businesses. The new management team will work closely with education authorities both in the US and around the world to ensure that the newly combined business continues to meet the needs and expectations of its customers.

    Economies of scale

    The combination of the two businesses will create significant economies of scale and produce a strong cash flow to fund future growth. There will be substantial back office synergies from the integration of their respective shared services projects, as well as an opportunity to achieve substantial production, distribution, central management, property and IT savings. As a result, Pearson expects to achieve $130m of annual cost savings by the Year 2000.

    The one-off cost of the full integration of the two businesses is expected to be around $270m, which will be accounted for in the current year. In addition, Pearson anticipates write-offs of around $100m to allow for accounting policy alignment and the writing down of certain capitalised costs in respect of the regional shared services project.


    The acquisition is expected to significantly enhance adjusted earnings in its first full year and is at a price that should provide shareholders a return in excess of the group's cost of capital. The effect of the acquisition on adjusted earnings in the current year will depend upon the closing date of the transaction.

    As stated in the 1997 Report and Accounts, in order to show results from operating activities on a comparable basis, any amounts charged to operating profits arising from the amortisation of goodwill will be excluded from the calculation of adjusted earnings.

    Although the acquisition will increase the proportion of group profits which arise in the US (where corporate tax rates are higher than in the UK), the impact of this should be offset by the use of existing tax losses in the US and tax relief for financing costs.

    The agreement provides for the consideration to be adjusted to reflect the seasonal variation in net assets between 31st December 1997 and completion. Any adjustment to the consideration is expected to be recouped from seasonal operating cash flow.

    The three divisions of Simon & Schuster being acquired and retained by Pearson - School, Higher Education and International - have, over the last three years, achieved the following:-

    Financial summary
    $m Sales Operating Profits
    1997 1,412 210
    1996 1,307 211
    1995 1,210 221

    The figures shown above are all unaudited and have been prepared under Viacom's accounting policies. In addition, certain Simon & Schuster central costs have been allocated by reference to sales.


    The acquisition will be financed initially through $6bn of new bank facilities which comprise a $2.5bn five year reducing term loan, a $2bn five year reducing revolving credit facility and a $1.5bn 364 day facility. Pro forma net borrowing at 31 December 1997, after taking into account recent Pearson's acquisitions and disposals including the proposed sale of the reference and business publishing division to Hicks Muse would be £2.5bn.

    Pearson intends to reduce the level of borrowings through the on-going disposal of passive investments and businesses that lack critical mass or are likely to be worth more to others than to Pearson. Pearson will review the opportunities available to refinance the facilities which may include an equity issue of up to 10% of Pearson's existing share capital. Pearson expects that, for 1999, interest will be covered four times by operating profit.

    The contract with Viacom provides for a £70m payment in the event that shareholders do not approve this transaction.

    Pearson is being advised by Goldman Sachs. The debt financing has been arranged by Goldman Sachs and HSBC. Cazenove & Co. are acting as brokers to Pearson.


    Pearson plc

    Pearson is an international media group. In addition to Addison Wesley Longman, its primary business operations include the Financial Times Group, which is one of the world's most authoritative sources of general business news and analysis; the Penguin group, which is one of the world's leading consumer publishing businesses; and Pearson TV, which is one of the world's leading independent international television producers. Pearson also owns a 50% stake in The Economist Group, which publishes the Economist newspaper. In 1997, Pearson made group operating profits of £323m on sales of £2.29bn. It employs 18,000 people in over 50 countries, including over 5000 in the US, where it made sales of nearly £1bn in 1997.

    Hicks, Muse, Tate & Furst Incorporated

    Since its formation in 1989, Hicks, Muse, Tate & Furst has completed or currently has pending more than 200 transactions with a total capital value of approximately $29bn. Headquartered in Dallas, Texas, the firm also has offices in New York, London, St Louis, Missouri, Mexico City and Buenos Aires.

    The businesses that Pearson has agreed to sell to Hicks Muse are

    Reference Publishing, which is Macmillan's programme in computer, general and library reference materials. This list includes consumer, technical and professional computer titles and brands such as Betty Crocker's cookbook and Webster's New World Dictionary.

    Business & Professional publishes "solutions" oriented books, periodicals and distance learning products for professionals with particular strengths in the areas of finance, healthcare, charities and business management.

    For further information

    Pearson plc
    John Fallon
    0171 411 2310