Pearson to Sell Lazard Stakes for #410 Million

Pearson and Telefonica agree to extend strategic alliance in Spain and Latin America

Pearson plc, the international media company, is to sell its interests in the three Lazard houses to Financiere et Industrielle Gaz et Eaux S.A., (Gaz et Eaux) a French listed investment company, for £410m in cash. Pearson has also announced today that it plans to extend the scope of its strategic alliance with Telefonica, the Spanish telecommunications company, to explore internet and multi-media opportunities in the Spanish and Portuguese speaking worlds. Telefonica plans to take a 5% shareholding in Pearson.

Pearson is selling to Gaz et Eaux its 50% interest in Lazard Brothers & Co., Limited in London along with its interests of 7.6% in Lazard Freres & Co., LLC in New York and 8% in Lazard Freres et Cie in Paris. In addition to the purchase price of £410m, Pearson will receive, on completion of the Lazard sale, a dividend of £15m. If the sale is not completed by 30 September this year, the dividend will increase up to the date of completion at a monthly rate of £1.75m in October, £2m in November and December and £2.5m for subsequent months. In the unanticipated event of an IPO or sale of Lazard at any time up to 30 September 2001, Pearson will receive 50% of any net gains realised by Gaz et Eaux within two years of that event.

The sale is conditional on, among other things, the approval of Pearson's shareholders, the approval of the partners and the directors of the three Lazard houses and the completion of the planned integration of the three Lazard houses into one global partnership, as announced earlier this month.

Pearson's interests in the three Lazard houses, whose principal activities are investment banking and asset management, contributed £42m of pre-tax profit in 1998 and £43m in 1997 and ordinary dividends of £25m and £32.3m respectively. Net assets attributable to Pearson at 31 December 1998 were £111m. Pearson intends to use the sale proceeds to reduce debt.

Michel David-Weill, chairman of Lazard Freres & Co., LLC and Lazard Freres et Cie, and David Verey, chairman of Lazard Brothers & Co., Limited, will step down from the board of Pearson plc. Their connection with Gaz et Eaux means that Pearson is required to seek shareholder approval of the transaction. Dennis Stevenson, chairman of Pearson, and John Makinson, its group finance director, will step down from the various positions they hold within Lazards.

Gaz et Eaux intends to finance its purchase of Pearson's stake in the Lazard houses with available cash and through the disposal of listed securities, including a significant shareholding in Pearson. Gaz et Eaux has received a preliminary approach from a potential trade purchaser to acquire these shares.

Marjorie Scardino, chief executive of Pearson plc, said: "Pearson's relationship with Lazard has been a long, happy and very profitable one. This sale allows us to invest all our resources in the businesses we manage and that are forming the future of Pearson. We wish the partners in Lazard a great future."

Michel David-Weill commented: "We are sad to see the end of our 80 year partnership with Pearson, but we fully understand their desire to refocus their business. We wish them continued good fortune in all their future affairs. At the same time, we enthusiastically welcome Gaz et Eaux as a significant partner. We set great store in the long term stability of the ownership of Lazard's capital and Gaz et Eaux, together with our other partners, will be ideal in this respect."

Bruno Roger, chairman of Gaz et Eaux, said: "We are very pleased at the prospect of becoming a significant partner in the Lazard Group. This transaction also fits very well in Gaz et Eaux's assets allocation strategy. We have been very satisfied over the years by the outstanding performance of our holding in Pearson and, although Gaz et Eaux will realise part of this holding, we will be happy to retain a significant shareholding in Pearson which has exciting prospects for the future."

Pearson has also announced today that it is to extend its strategic alliance with Telefonica, the leading Spanish telecommunications company. Telefonica currently has a strategic alliance with, and owns a 20% stake in, Recoletos, Pearson's Spanish media business. Recoletos is one of the leading media groups in the Iberian Peninsula and has been working with Telefonica to broaden its reach both within Spain and in Latin America. The strengthening of the strategic alliance will provide Pearson, working with Telefonica, with wider opportunities to develop internet and multi-media services in the Spanish and Portuguese speaking worlds. Telefonica intends to acquire a 5% shareholding in Pearson and Pearson plans to make arrangements for the purchase of Telefonica's 20% stake in Recoletos.

Commenting on the alliance with Telefonica, Marjorie Scardino said: "The Recoletos alliance with Telefonica has worked well. Now, by linking together more closely, we can gain unrivalled access to some of the very exciting internet and multimedia opportunities we see developing in the Spanish - and Portuguese - speaking worlds."

Juan Villalonga, chairman of Telefonica, added: "Pearson is the finest multi-media company in Europe. We could have no better partner as we seek to use our infrastructure to extend the range of media services we provide in the Spanish and Latin American markets we know so well."

A circular to shareholders on the sale of Pearson's stakes in the Lazard houses will be posted in due course. Pearson has been advised by Schroders on the Lazard transaction.

Notes

Recoletos publishes Spain's leading financial and business publication, Expansion, and Europe's best selling sports newspaper, Marca. It owns a significant stake - and plays an active management role - in Unedisa, which publishes El Mundo, one of Spain's leading daily newspapers - and owns a stake in Economica, which publishes Portugal's leading daily financial and business newspaper. Recoletos has a 10% stake in the broadcaster, Antena 3, in which Telefonica is also a shareholder. It has recently launched a business television channel, Expansion Financiera, which is broadcast from Madrid to Spanish and Latin American financial centres on the satellite digital platform, Via Digital, in which Recoletos has a 5% stake. In 1998, Recoletos made operating profits of £30m on sales of £126m.

Telefonica is the largest supplier of telecommunications services in the Spanish-and Portuguese-speaking world. Through affiliate companies in Latin America, Europe and the United States, the Telefonica Group services a potential market of more than 530 million customers. With 2,906 trillion pesetas ($20.377 billion) in 1998 revenues, Telefonica is one of the world's leading telecommunications operators, as well as Spain's largest company in terms of profits, assets, market capitalization and employment. As of March 1999, the companies in the Telefonica Group had a total of 51.5 million customers in Spain and abroad. The group manages 36.8 million fixed telephone lines, has 12.3 million cellular clients and 2.3 million pay TV customers.

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John Fallon

 

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