Pearson CEO Scardino Will Step Down as Fallon Takes Over

Pearson PLC CEO Marjorie Scardino
Marjorie Scardino, chief executive officer of Pearson PLC. Photographer: Jussi Nukari/AFP/Getty Images

Pearson Plc Chief Executive Officer Marjorie Scardino will step down after 16 years and be replaced by the head of its international education business, spurring speculation the company may sell the Financial Times newspaper.

John Fallon, 50, will replace Scardino, 65, starting January 2013, the London-based company said today. The first female CEO of a major U.K. company, Scardino was made a Dame of the British Empire in 2003 and almost tripled Pearson’s sales during her tenure.

Scardino, who took over as chief in January 1997, has been expanding Pearson’s education business while pushing digital versions of books, journals and newspapers to counter stagnating sales of print products. Her departure raises questions over whether the Financial Times Group, which owns the newspaper and a 50 percent stake in The Economist, will be sold, said Ian Whittaker, an analyst at Liberum Capital Ltd.

“Marjorie Scardino was a big fan of the group, John Fallon has no emotional commitment,” Whittaker said. Pearson’s difficulties at its U.S. education business, with a “likely second year of like-for-like decline and no signs of a turnaround” may have been the signal for Scardino to get out “while the going is relatively good,” Whittaker said.

Dropping Profit

The company in July reported a 9.6 percent drop in first-half operating profit as income from its professional training business declined.

Pearson dropped 0.6 percent to 1,230 pence as of 3:36 p.m. in London, valuing the company at 10 billion pounds ($16 billion). The stock had risen 2.2 percent through yesterday, while the FTSE 100 benchmark index gained 4.3 percent.

Liberum Capital said it values the Financial Times Group, including the stake in the Economist magazine, at about 770 million pounds.

Potential buyers for the Financial Times would be Bloomberg LP, News Corp. and Thomson Reuters Corp., said Alex DeGroote, a media analyst at Panmure Gordon & Co. in London.

“The Financial Times is worth a lot more to someone else than Pearson,” he said. “With the Financial Times, it’s all about the value of the brand, and the FT is the classic trophy asset.”

Print Operations

Bloomberg would be an obvious buyer because it already has print operations with its Businessweek magazine, while News Corp., which is in the process of splitting off its publishing holdings, could use the Financial Times as an important part for that new business, DeGroote said.

Reuters spokesman David Crundwell and Bloomberg spokeswoman Catrin Thomas declined to comment. News Corp. representatives couldn’t immediately be reached. Bloomberg LP, the parent of Bloomberg News, competes with Pearson’s Financial Times in providing financial news and information.

The Financial Times Group accounted for 7 percent of sales at Pearson last year, while education made up 75 percent and 18 percent came from the Penguin book publisher.

“We question whether Penguin and the Fincancial Times Group fit strategically, given Pearson’s skew to education,” said Steve Liechti, a media analyst at Investec Securities in London. “Fallon is not a life-long publisher, so could be more brutal in his strategic direction in time.” Liechti values the Financial Times Group at about 750 million pounds.

‘Highly Valued’

Asked about the fate of the Financial Times, Fallon said on a conference call today that the newspaper is “highly valued and a very valuable part of Pearson.”

Fallon has been chief of Pearson’s international education unit since 2008.

“With more than 15,000 people in 70 countries, this division is fundamental to Pearson’s growth strategy,” the company said. Since Fallon took over, international education sales increased to 1.4 billion pounds from 322 million pounds .

During Scardino’s tenure, the number of Pearson employees more than doubled to 41,520 in 2011 while sales almost tripled to 5.87 billion pounds and operating profit more than tripled to 942 million pounds. The company’s share price has risen more than 80 percent since she became CEO while the FTSE 100 index gained about 40 percent.

Born in Arizona and raised in Texas, the former rodeo racer helped found the Pulitzer Prize-winning Georgia Gazette in 1978. The weekly newspaper, which was published in Savannah, Georgia, folded in the mid-80s.

Scardino is a graduate from Baylor University and the University of San Francisco’s School of Law. Prior to becoming CEO of Pearson, Scardino was CEO at the Economist Group. In 2010, she was named a fellow of the American Academy of Arts and Sciences.

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