Pearson may pull out of Sky

MATHEW HORSMAN

Pearson, the media and information conglomerate, looked poised yesterday to accelerate its expansion into television production, hinting that it might allocate further funds to finance the high-stakes strategy of its TV chief, Greg Dyke.

Announcing a review of its 14 per cent stake in BSkyB, the satellite broadcaster, Pearson said it might sell a 9.7 per cent holding worth pounds 500m through a secondary share offering.

The news immediately sparked speculation that Pearson would expand further into television and multimedia, under a strategy developed jointly by Pearson's chief executive, Frank Barlow, and Mr Dyke, formerly head of London Weekend Television.

Shares in both Pearson and BSkyB climbed on the news. If the sale goes ahead, BSkyB will have a large enough public shareholding to be eligible for inclusion in the FT-SE 100 index, with improved trading prospects.

Analysts had been expecting the announcement. "They haven't got a huge influence with only a 14 per cent stake," Robert Jolliffe, media analyst at Hoare Govett, said.

Pearson is looking to expand in the production and distribution areas. It already owns Thames Television, the independent production company, and Grundy Worldwide, the Australian producer of hits such as Neighbours, bought earlier this year.

Along with its partner, MAI, the media and financial services company, it is also a bidder for the licence to operate the new Channel 5, scheduled to be awarded in September.

Some analysts expressed concern about Pearson's past acquisition policy, saying the company had overpaid for key holdings. They said the pounds 175m paid for Grundy was a case in point.

Pearson, which earlier this month was hit by two profit downgrades by City institutions, also owns publishing houses, regional newspapers and the Financial Times.

Analysts said part of the proceeds from any sale of the BSkyB stake could be used to raise the company's stake in TVB, the Hong Kong-based broadcaster in which Pearson holds a 10 per cent interest. Other options might include buying electronic media companies, particularly in the US.

Sources at both Pearson headquarters and Pearson Television cautioned that the proceeds would not necessarily be spent on expanding the company's media interests."The money would go into the corporate pot," a spokeswoman said.

Pearson's 9.7 per cent stake in BSkyB was worth pounds 547m yesterday, but the company would have to accept a discount to the market price in order to place the shares and would incur advisory and other costs.The company's total investment in BSkyB was carried on the books at pounds 130m, while it has received dividends of pounds 192m.

BSkyB's 40 per cent owner, Rupert Murdoch's News Corporation, privately applauded the announcement. Relations between Pearson and News Corporation have been cool, particularly since Mr Barlow was removed as chairman of the board at BSkyB earlier this year.

Granada, which holds 6.5 per cent of BSkyB, signalled that it would not be interested in raising its stake.

A judgment in the long-running court case brought by BSkyB minority shareholder London Merchant Services, the investment and property group, is to be handed down on Friday and could affect Pearson's plans to sell its 9.7 per cent stake in the satellite broadcaster.

LMS has accused former shareholders of British Satellite Broadcasting - an earlier broadcaster - of treating minority shareholders "unfairly." LMS says the minorities were not allowed to subscribe to new equity to maintain their share stake when the company was restructured and subsequently merged with what was then Sky TV to create the BSkyB company.