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Cevian amps up pressure on Pearson, one year in to new CEO

City AM logo City AM 31/10/2021 Amy O'Brien
© Provided by City AM

Activist investor Cevian Capital has built up its stake in the world’s largest education company Pearson, a year after new chief executive Andy Bird joined with a promise of a “new era” for the beleaguered group.

The Swedish investor is now Pearson’s second largest shareholder, indicating it plans to heat up pressure on the publisher and a push for a seat on the board may be on the horizon.

A regulatory filing in the US revealed it has ramped up its stake in the FTSE 100 company to 8.5 per cent, up from 6.8 per cent.

It’s a change of tack for Europe’s largest activist investor, which had begun selling off its stake in Pearson earlier this year. Cevian first revealed it had bought a 5.4 per cent stake in the firm in June 2020, which it rapidly upped to 8.5 per cent in August last year.

Cevian scours global markets for companies that it deems either undervalued or underperforming compared to their full potential – and it argued Pearson fell into this category at the time, under ex-CEO John Fallon, and was in need of reform.

But when Pearson’s shares rocketed in January this year, amid a Reddit-inspired retail investor trading frenzy, Cevian sold its shares to capitalise on the price spike and bought some back at a much lower price.

Veteran media industry boss Andy Bird joined Pearson as CEO this time last year after the company had struggled to compensate for a collapse in textbook sales and issues seven profit warnings during Fallon’s tenure.

Bird had most recently served as chairman of Walt Disney International, and was touted as particularly experienced in “driving digital innovcation.”

He promptly launched a “direct to consumer” division within the publishing company to accelerate its digital transition, through which it offers US students access to 1,500 of its education titles through a subscriber app.

But the pandemic has led to such a stark drop-off in US student enrolment numbers that analysts predict they will never return to pre-Covid levels.

In the group’s latest results, it said revenue from its US higher education segment had decreased 9 per cent, pushing down its overall higher education portfolio.

Media analyst Ian Whittaker pointed out at the time that “Pearson has changed its divisional reporting structure so there are no direct comparables at a divisional level from last year in the statement,” making it more difficult to chart progress under Bird’s watch.

Nevertheless, the group said it was on track to hit expectations and deliver an operating profit of around £377m by the end of the year.

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