Pearson plc History
London WC2R 0RL
Telephone: (20) 7411 2000
Fax: (20) 7010 6060
Incorporated: 1897 as S Pearson & Son Ltd.
Sales: £3.87 billion ($5.7 billion) (2000)
Stock Exchanges: London New York
Ticker Symbol: PSO
NAIC: 51111 Newspaper Publishers; 51112 Periodical Publishers; 51113 Book Publishers
We have a simple strategy that we all understand and believe in--we will steadily increase value for Pearson's shareholders. We want to make outstanding returns for our shareholders by creating, owning, applying, and exploiting intellectual property and we want to do this in a way that is brave, imaginative, and decent.
- Samuel Pearson becomes an associate partner in a building and contracting firm.
- The Aguila Oil Company Ltd. is created to oversee most of Pearson's oil interests.
- Whitehall Petroleum Corporation Ltd. is formed to take over Pearson's oil interests; Whitehall Trust is created as a finance and issuing house.
- Pearson acquires an interest in Financial News Ltd.
- The company goes public.
- A controlling interest in Camco Inc. is purchased.
- The company's name is changed to Pearson plc.
- Subsidiary Penguin Publishing Co. Ltd. acquires Viking of the U.S. and the Michael Joseph and Hamish publishing houses.
- U.S.-based publisher Addison Wesley is purchased.
- The firm buys Les Echos Group.
- Pearson begins divesting its oil businesses.
- The company begins to focus on its media businesses related to information, education, and entertainment.
- Software Toolworks is purchased and renamed Mindscape.
- HarperCollins Educational, Twenty-First Century Business Publications, and Putnam Berkeley are acquired; Westminster Press is sold.
- Pearson acquires Simon & Schuster's education, reference, and business and professional publishing division.
- Pearson sells its 22 percent stake in RTL Group to Bertelsmann AG.
Since the mid-1990s, Pearson plc has transformed itself from a industrial holding company with a large and sometimes confusing group of interests to the world's largest publisher of educational materials with three major business groups. Pearson Education provides textbooks, learning tools, and testing programs to over 100 million people. The Penguin Group publishes both fiction and non-fiction under the imprints Allen Lane, Avery, Berkley Books, Dutton, Hamish Hamilton, Michael Joseph, Plume, Putnam, Riverhead, and Viking. The Financial Times Group publishes the Financial Times newspaper, Les Echos in France, Expansion in Spain, and a host of personal finance magazines, including Investors Chronicle. The restructuring, led by CEO Majorie Scardino and chairman Dennis Stevenson, proved successful as the company's revenues doubled from 1996 to 2000 while its operating profit tripled.
Early Growth As a Building and Contracting Firm
In its early years, the business was dominated by Weetman Dickinson Pearson, and later First Viscount Cowdray, who transformed it into an international contracting concern, which he subsequently converted to an investment trust-type operation. Pearson's roots can be traced to Weetman's grandfather, Samuel Pearson, who in 1844 became an associate partner in a Huddersfield-based building and contracting firm. In 1856, his eldest son, George, entered the business, which became known as S Pearson & Son, "sanitary tube and brickmakers and contractors for local public works in and around Bradford."
Contracts undertaken at this time were locally based and were for railway companies and, more frequently, for the provision of water supply, drainage, and sewerage facilities to expanding industrial cities. The business developed rapidly, moving its head office in 1857 to nearby Bradford, Yorkshire, and expanding its associated brick-making, glazed tile, and sanitary pipe activities. In 1873, Weetman Pearson entered the business and received a share in its ownership on the retirement of Samuel in 1879.
Pearson, increasingly under the direction of Weetman, began to make a quick metamorphosis into an internationally based concern. In the late 1870s, contracts outside the north of England were undertaken for the first time, and the head office was moved to London in 1884. Five years later projects were in progress as far afield as Egypt, the United States, Canada, and Mexico with port works, railway construction and tunneling, and water supply and drainage predominating. Between 1884 and 1914 some 67 projects, with a total value of almost £43 million, were undertaken. Of these, 36--valued at £16.5 million or 38 percent of the total--were located outside Great Britain and Ireland; with 10 percent in the United States and Canada; 45.5 percent in Central and South America; and 7 percent in Egypt, Spain, China, Malta, and Bermuda.
The British government was a major client, as were municipalities, railway and harbor companies, and water utilities. Contracts of particular note included the Admiralty Harbour at Dover; the Blackwall Tunnel under the River Thames in London; the East River Railway Tunnels, New York, for which a U.S. subsidiary, S Pearson & Son Inc., was formed to carry out the work; Malta Dry Docks and Breakwaters; and Halifax Dry Dock in Canada.
However, Mexico was the country where Pearson made its greatest mark, to the extent that Weetman Pearson, by now a member of Parliament, was dubbed in the House of Commons and elsewhere as the "Member for Mexico." The first contract for the Mexican government, which ran from 1890 to 1896, was for the construction of the Mexican Grand Canal to drain Mexico City and its surrounding area. A succession of other government-owned or sponsored projects followed--the £3 million conversion of Vera Cruz harbor into a modern seaport; the £2.5 million reconstruction of the Tehuantepec Railway and its associated terminal ports, linking the Atlantic and Pacific Oceans; and the Salina Cruz harbor and docks, at £3.3 million.
Expansion Into Oil and Electric Power: Early 1900s
A growing confidence between Mexican dictator Porfirio Díaz and Weetman Pearson consolidated Pearson's Mexican interests. Under the Tehuantepec Railway contract, Pearson built the facilities at cost, provided part of the capital, and then managed the railway and ports, taking part of the profits as remuneration. This entry into the mainstream of Mexican business soon led to other interests, most importantly oil. In 1901, Pearson began to acquire oil-bearing land and by 1906 owned 600,000 acres and had royalty leases over about another 250,000. Oil refining began, and in 1908 Pearson entered the Mexican oil retail trade in direct competition with Walter Pierce Oil Company, mostly owned by Standard Oil Company, resulting in severe price competition.
However, it was not until 1910 that the business was transformed into an international oil concern with the discovery of the Potrero de Llano oil field. The Aguila (Mexican Eagle) Oil Company Ltd. was formed to take over most of Pearson's oil interests and make a public issue of securities. In 1912, as a means of extending this business, the Eagle Oil Transport Company Ltd. and the Anglo Mexican Petroleum Company Ltd. were formed to focus on international distribution and sales. Some £12 million of Pearson capital had by now been committed to Mexican oil. During World War I, an immense trade was done in supplying the British government. In 1919, the Royal Dutch group acquired a large shareholding in the Aguila and took over management control, although for many years Pearson continued to own a large part of the company. In 1919, Whitehall Petroleum Corporation Ltd. was formed to take over Pearson's oil interests and prospect--mostly unsuccessfully--for oil worldwide. Its most notable action was the establishment of the Amerada Corporation, a major U.S. oil company, in 1919.
Another feature of Pearson's diversification after 1900 was the generation, supply, and application of electric power in Latin America. This began when Díaz invited Weetman Pearson to electrify and then manage the tramway system--later extended to electricity supply generally--in Vera Cruz, a service which was carried into effect by the Vera Cruz Electric Light, Power, and Traction Company Ltd. Soon Pearson developed similar schemes elsewhere in Mexico. After World War I, these developments were extended outside Mexico, when undertakings in Chile were acquired. The Chilean interests were subsequently modernized and managed by Pearson's Cia. Chilena de Electricidad. All these electrical interests were consolidated into Whitehall Electric Investments Ltd. in 1922.
In 1897, Pearson, which was then reckoned to be the world's leading contractor, was converted into a limited company with an issued share capital of £1 million, all of which was owned by the Pearson family or by non-family directors. In 1907, Whitehall Securities Ltd. was formed to take over all of Pearson's non-contracting activities, while in 1919, S Pearson & Son (Contracting Department) Ltd. took over the firm's contracting interests. S Pearson & Son Ltd. became the group's holding company.
During World War I, the contracting company was preoccupied with military contracts, of which the huge munitions plant at Gretna Green in Scotland--worth £9.2 million--was the largest. However, in the late 1920s the construction business was closed down, not sold, as a going concern apparently as a result of family whim. By now, however, Pearson had diversified well beyond the supplying of oil and electricity. In 1908, Weetman Pearson was a member of a large syndicate which acquired the London evening newspaper The Westminster Gazette. After the war, he acquired total control of the newspaper, converted it into a morning daily, and began to build around it a group of provincial newspapers. In 1919, the company established Whitehall Trust Ltd. as a finance and issuing house, and at about the same time its principal asset, a substantial interest in Lazard Brothers & Company, the London merchant bank, was acquired. A partnership was formed with Dorman Long & Company Ltd. to develop a coal mining and iron and steel industry in Kent, although this project was not to figure prominently in Pearson's affairs,
When Lord Cowdray died in 1927, he had completely reshaped his family's business. He was succeeded as chairman by his second son, Clive, while his eldest son, Harold, played a significant part in the development of Westminster Press Ltd. The management philosophy was to develop and extend the core businesses through local management. In 1929, the electricity businesses in Mexico and Chile were sold, but similar electricity undertakings were developed in southwest England. The company played a substantial role in establishing British Airways Ltd.--not the state-owned business that came to be known as British Airways PLC--in 1935.
The most significant result of World War II was the purchase of strategic Pearson assets by the British government. These included the airline interests but, much more significantly, the interest in the Amerada Petroleum Corporation, which was compulsorily acquired in 1941. The year 1948 saw the nationalization of the electricity undertakings in the west of England.
In the 1950s, the general strategy of Pearson, which from 1954 was under the chairmanship of the Third Lord Cowdray, was to concentrate on well-defined sectors and within them build up specialist niche businesses producing quality products, with much decision-making devolved to local management. This was to be a successful and enduring philosophy. The five legs on which the business now stood were financial services, publishing, oil, manufacturing, and investment trusts.
Acquisitions and Divestitures: 1950s-80s
In 1945, the surviving oil interests were largely confined to oil and gas properties owned by Rycade Corporation of the United States. In the 1950s, the activities of this company were extended, while particularly successful expansion also occurred in western Canada through Whitehall Canadian Oils Ltd. In addition, a small interest in Amerada was reacquired. Publishing was strengthened in 1957 when a substantial interest was taken in Financial News Ltd., which in turn owned a large interest in the Financial Times and a small range of quality periodicals. In 1960, the last of the overseas electricity utilities was disposed of when the business of Athens Piraeus Electricity Company, which had operated under a concession granted in 1925, was sold to the Greek state, although a smaller trolley bus operation in Athens was retained until about 1970. In manufacturing industry, a substantial interest in Acton Bolt Ltd., makers of nuts and bolts, was sold to GKN Ltd. in 1959, and another in Saunders-Roe Ltd., builder of helicopters, was sold to Westland Aircraft Company Ltd. in 1959.
In 1969, for tax and fiscal reasons, the business was converted into a quoted company and 20 percent of the equity was sold to the public. The company was then valued at £20 million, and profits before tax, attributable to shareholders, totaled almost £7 million. About 25 percent of profits came from financial services which largely consisted of Lazard Brothers & Co. Ltd., which was now almost fully owned by Pearson and Whitehall Securities Corporation, which provided services to the group. An additional 30 percent of profits were generated from a 51 percent holding in the publicly quoted S Pearson Publishers Ltd., owner of the Financial Times; Westminster Press Ltd., controller of about 60 local and provincial newspapers; and the Longman Group Ltd., a general publishing house. Oil interests in North America, which were reorganized at the end of the 1960s, provided about 20 percent of profits. Manufacturing, where the chief asset was a 59 percent interest in Standard Industrial Group Ltd., another publicly quoted company, included interests in pottery, glass, engineering, and warehousing. This contributed about 7 percent of profits. Finally, 15 percent of profits were contributed by investment trusts.
In the 1970s, the North American interests of Pearson were mostly represented by the holding in Ashland Oil, held by Midhurst Corporation. This holding was slowly reduced and the proceeds used to acquire other North American interests, especially in oil exploration and production services, as part of an effort to extend Pearson's interests outside the United Kingdom and into North America. The most significant move was the acquisition of Camco Inc., supplier of services and equipment to the oil industry on a worldwide basis, in which a controlling interest had been purchased by 1979. This business was subsequently built up by acquisition. Lignum Oil Co. and Hillin Oil, involved in the acquisition and development of oil producing properties, were also acquired, but were sold in 1989 as part of a divestment of oil exploration activities which also included the sale of Whitehall Petroleum.
Financial services remained grouped around the merchant bank of Lazard Brothers in which Pearson, in 1990, had a 50 percent interest, reduced from 79 percent. This decrease followed an ownership reorganization in 1984 when, as an early response to increasing internationalization of the securities industry, Lazard of London and two other Lazard houses, in Paris and New York, became more closely linked. An exchange of ownership interests resulted in Pearson having a 10 percent profit interest in both these houses. Notwithstanding the acquisition in 1976 of the unowned part of Embankment Trust Ltd., investment trust and other portfolio-type investments were decreased in order to fund acquisitions.
At time, Pearson's interests in manufacturing were concentrated in the Doulton fine china business, which emerged as a world leader with a strong overseas distribution network. The engineering interests were strengthened in 1980 by the acquisition of the high technology businesses of Fairey Industries Ltd., and their merging with Pearson's other engineering interests in 1982. However, these relatively minor activities were disposed of in 1986 as part of group policy to focus more on core activities. Similarly, involvement in the manufacture of specialist glass, which had expanded rapidly in the 1970s, was terminated in 1982 with the sale of Doulton Glass Industries Ltd.
The minority interest in Pearson Longman Ltd. was acquired in 1982. Publishing, the division of Pearson with the highest proportion of profits, embraced financial publications that included not just the Financial Times--the world's leading financial newspaper--but also a host of important financial periodicals, including The Economist, in which Pearson had a 50 percent interest, and the Investor's Chronicle, as well as on-line electronic publications. Longman by acquisition and organic expansion, emerged as a major publisher of professional, educational, medical, and general reference publications. Penguin also held a strong international position in publishing both paper- and hard-back fiction and expanded its operations through the acquisition, among others, of Viking of the United States and the Michael Joseph and Hamish Hamilton publishing houses in 1985. Westminster Press expanded into newspapers distributed free of charge and disposed of several newspapers paid for by readers, as it concentrated resources in areas where it was a clear market leader. In 1987, the acquisition of Addison Wesley of the United States, with a strong schools and college list, confirmed Pearson as a major international publishing group. The global holdings increased in 1988 by a share swap with Elsevier, a leading Dutch publishing company, and through the acquisition of the French Les Echos Group. The swap with Elsevier was undone in 1991, when the two companies were unable to devise merger terms acceptable to all parties.
One new interest, since the mid-1980s linked to the publishing division, was the expansion into daytime family entertainment. Although Pearson had owned Chessington Zoo for many years, this area was fully established through the acquisition of Madame Tussauds in 1978. Since then a number of acquisitions were made and developed, virtually all U.K. based. Further developments in this general sector included the acquisition of a 25 percent holding in Yorkshire Television Ltd. in 1981, and a less than successful involvement, which was terminated, in filmmaking. It also gained a 16 percent share in BSkyB, the first satellite television service in the United Kingdom, in 1990.
While Pearson's shares became much more widely held, the Pearson family continued to hold a large--but not controlling--share of the equity in the late 1980s. The Third Lord Cowdray retired from the chairmanship in 1977 and was succeeded by Lord Gibson and then by Lord Blakenham in 1983, both of whom were family members. The company's name was changed to Pearson plc in 1984, and by the early 1990s, the company could claim to be one of the most successful British-based companies.
Focus on Media-Related Businesses: 1990s and Beyond
Indeed, Pearson had become quite large with considerable holdings spread across many industries. In an attempt to increase profits, the company began its migration towards focusing solely on its media businesses related to information, education, and entertainment. For the remaining years of the 1990s, Pearson accelerated its acquisition and divestiture activity to mold itself into a publishing industry giant.
Pearson's purchases included Extel Financial Ltd. for £74 million in 1993, Thames Television, and Software Toolworks--renamed Mindscape--for £312 million in 1994. The company also acquired the Register Group Ltd. and Future Publishing Ltd. that year, along with Interactive Data Corporation in 1995. The firm beefed up its entertainment holdings by purchasing stakes in several television concerns along with Grundy Worldwide Ltd. and ACI. At the same time, the company sold off its interest in Camco International Inc., Yorkshire Tyne-Tees TV, its 9.75 percent direct holding in BSkyB for £560 million, and Westminster Press.
Pearson added to its publishing arsenal in 1996 by acquiring HarperCollins Educational, Twenty-First Century Business Publications, and Putnam Berkeley, which was renamed Penguin Putnam Inc. The most dramatic changes however, came in 1997 with the appointment of Majorie Scardino as CEO. The first woman to lead a major British concern, Scardino immediately set plans in motion to increase revenue growth and bolster the firm's reputation in the media industry. She was joined by Lord Dennis Stevenson, the company's first non-family chairman, who had replaced Blakenham earlier in the year.
In an attempt to boost U.S. sales of its Financial Times newspaper, Pearson began heavily investing in advertising and printing, hoping to capitalize on the paper's global business coverage--coverage that its competitors lacked. The duo also stepped up the pace of the firm's restructuring program, and divested its Troll, TVB, and Churchill Livingstone holdings in 1997. The following year its sold the famed Tussauds Group, Capitol Publishing, Future Publishing, Mindscape, and its Law and Tax publishing concerns. The company also made several key purchases, including All American Communications Inc., Resource Data International, and several newspaper concerns. The most significant acquisition however, was that of Simon & Schuster's education, reference, and business publishing arm for $4.6 billion. The deal secured Pearson's position as the world's largest educational publisher.
In 1999, the company continued to trim its portfolio with the sale of its Lazard holdings for £410 million. It also sold its Macmillan Library and General reference businesses, Jossey-Bass, and various other non-core holdings. It also purchased E Source Inc. and Thomson Financial Securities Management.
Pearson entered the new millennium looking much different then it had just five years earlier. Scardino's strategy of streamlining company operations appeared to be paying off as revenues had doubled since 1996 and were climbing to the £4 billion mark. Operating profit had also tripled during that time period to £686 million. The company continued to make strategic purchases to complement its media holdings. In 2000, National Computer Systems Inc. was acquired for $2.5 billion and merged into its Pearson Education unit. Dorling Kindersley plc was also purchased and its operations were folded into The Penguin Group. Pearson then combined its asset valuation business with Data Broadcasting Inc. In July 2000, the company merged its television holdings with CLT-Ufa to form the RTL Group S.A. It made its final exit from television however, when it sold its 22 percent stake in RTL to Bertelsmann AG in 2002. By now, the company stood as a global media company with its businesses concentrated on education, business information, and consumer publishing.
While Pearson had made great strides in becoming a leading media concern, the company faced economic challenges. During 2001, the firm was forced to cut its Internet spending related to the Financial Times Web site. The Penguin Group was also hit by an industry wide drop-off in backlist sales. The Latin American market weakened and advertising sales in company's publications fell dramatically. As such, profits in the Financial Times Group fell by nearly 40 percent in 2001. As economic hard times continued, Pearson cut costs and revised its business strategies in order to combat the financial downturn. Nevertheless, Scardino remained optimistic about the company's future. Having accomplished what she set out to do, the CEO held firm to her belief that Pearson would remain a leader in the publishing industry.
Principal Subsidiaries: Addison-Wesley Longman Inc. (U.S.); Addison Wesley Educational Publishers Inc. (U.S.); Pearson Education Ltd.; Prentice Hall Inc. (U.S.); NCS Pearson Inc. (U.S.); Financial Times Group Ltd.; Financial Times Business Ltd.; Data Broadcasting Inc. (U.S.; 60%); Les Echos SA (France); Recoletos Compania Editorial SA (Spain; 78.97%); Penguin Putnam Inc. (U.S.); The Penguin Publishing Co. Ltd.; Penguin Books Australia Ltd.; Doring Kindersley Holdings Ltd.
Principal Operating Units: Pearson Education; The Penguin Group; The Financial Times Group.
Principal Competitors: Dow Jones & Company Inc.; The News Corporation Ltd.; Vivendi Universal Publishing.
- Colby, Laura, "Yankee Expansionist Builds British Empire," Fortune, March 16, 1998, p. 102.
- Jeffrey, Don, "All American Acquired by Pearson," Billboard, October 11, 1997, p. 96.
- Milliot, Jim, "Acquisitions Boost Pearson Book Sales to $1.5 Billion," Publishers Weekly, April 28, 1997, p. 11.
- Morais, Richard C., "The U.S. Is a Very Noisy Place," Forbes, June 16, 1997, p. 54.
- "Pearson Is Slashing Its Spending On the Financial Times Web Site," Marketing, March 15, 2001, p. 2.
- "Pearson Plc Issues Trading Update," Business Wire, December 18, 2001.
- Spender, J.A., Weetman Pearson. First Viscount Cowdray, London: Cassell & Co. Ltd., 1930.
- "Weetman Dickson Pearson. 1st Viscount Cowdray," Dictionary of Business Biography: A Biographical Dictionary of Business Leaders Active in Britain in the Period, 1860-1980, Vol. IV, edited by David Jeremy, London: Butterworth & Co. Ltd., 1985.
- Young, Desmond, Member for Mexico. A Biography of Weetman Pearson, First Viscount Cowdray, London: Cassell & Co., Ltd., 1966.
Source: International Directory of Company Histories, Vol. 46. St. James Press, 2002.