Shares in Pearson slumped by as much as 12% after Apollo said it would not make another bid for the educational publisher after having a third offer valuing the company at £7.2bn, including debt, rejected earlier this week.
Investors sent shares in Pearson – whose market value rose by a fifth after the US private equity group revealed it was considering sweetening a second £6.4bn offer that was snubbed earlier this month – plunging, making it the biggest faller on the FTSE 100 on Wednesday.
Apollo made a third offer on Monday, a combination of cash and an agreement to pay out the company’s previously announced dividend to shareholders, valuing the company at 884.2p. The offer values the business at £6.7bn, while Pearson also has about £500m in net debt, giving an enterprise value of £7.2bn.
Investors, unhappy at the deal going cold, wiped as much as £750m off the market value of the education group, which had a stock market capitalisation of £5.95bn at the close of trading on Tuesday.
“The board of Pearson considered the third proposal, together with its financial advisers, and concluded that it significantly undervalued the company and its future prospects,” the company said. “Accordingly, the board of Pearson unanimously rejected the third proposal.”
Apollo responded with a statement saying it does not intend to make a fourth offer. Under UK takeover rules, Apollo cannot revisit a potential takeover of Pearson for six months unless the educational company’s board agrees – or a third-party emerges with a bid.
“Apollo notes that it has been unable to reach agreement with the board of Pearson as to the terms of an offer for the entire issued and to be issued share capital of Pearson,” the company said. “Accordingly, Apollo confirms that it does not intend to make an offer for Pearson.”
Earlier this month, Pearson’s board confirmed it had unanimously rejected an 854.2p offer made on 7 March saying it “significantly undervalued the company and its future prospects”. It also revealed that it had rejected an all-cash offer of 800p in November.
Interest in Pearson, which counts Europe’s largest activist investor Cevian as its biggest shareholder with a 10% stake, comes as the company is finally emerging from a seven-year slump marked by a string of profit warnings and a record £2.6bn loss.
Pearson has been on a steady recovery path since being caught out by the seismic shift of students in the US, its biggest market, away from buying its new academic titles to snapping up secondhand titles and ebooks.
The shift to a digital-first model began under its previous chief executive, John Fallon, who stepped down in 2020 after almost eight years.
Its new head, Andy Bird, the former chair of Walt Disney’s operations, has doubled down on that approach, launching a Netflix-style subscription service called Pearson+ at the heart of the company’s strategy.
Last year, Apollo sold McGraw Hill, a rival US-headquartered textbook publisher and education company, to Platinum Equity for $4.5bn.