Financial Times without fear without favour

In an office at Pearson’s art deco London headquarters — the former Shell Mex building overlooking the river Thames — sits a stack of inquiries from would-be buyers of the Financial Times.

Pearson, the FT’s owner since 1957, had long let the propositions pile up. But early in June, after months of cat-and-mouse negotiations with German media group Axel Springer, it decided to open up the process — and advisers started to sift through the papers.

The result is one of the most richly valued news industry deals of the past decade, a sale to Japanese media group Nikkei of the 127-year-old FT and related magazines for £844m in cash— five times what Amazon founder Jeff Bezos paid for the Washington Post in 2013.

This is an account of how the FT was sold, drawn from extensive interviews with executives at the companies involved, advisers and other people close to the situation.

Before John Fallon moved into the Pearson CEO’s office in January 2013, a sale of the FT had seemed almost taboo. There was little pressure from shareholders or the board to sell the FT. Moreover, “no new CEO would want to sell off the crown jewels as the first thing they do,” said one person familiar with the matter.

But Pearson was also finding that the priorities of its global news brand and its much larger education business were starting to diverge. “You’re a global education company or you’re a global journalism company — both great things to be, but it’s hard to ride both horses equally well,” Mr Fallon said on Thursday after the sale was announced.

By last month Pearson had already been talking to Axel Springer, the influential Berlin-based publisher of German tabloid Bild and the conservative daily Die Welt, for almost a year. Those talks had begun as a discussion about a possible joint venture with the FT, potentially together with a private equity fund, according to people familiar with the matter, but had accelerated into a negotiation about an all-out takeover.

The possibility of a sale had been clear since Pearson decided to focus on education in the late 1990s, said Claudio Aspesi, an analyst at Bernstein. “It became a matter of time.”

The FT had long been deliberately cocooned by highly profitable information businesses, such as IDC, Mergermarket and a stake in the index provider FTSE. But as Pearson sold those assets, the global business publication began to look increasingly exposed.

FT Group profits tripled last year on flat revenues. But while FT managers had long appreciated Pearson’s respect for editorial independence, some had begun to chafe at Pearson’s reluctance to commit as much investment as they believed was necessary to manage rapid digital change, global expansion and rising competition from well-funded rivals. By contrast Pearson remained unconvinced that the FT group was a long-term, high-growth prospect.

When talks with Axel Springer intensified, both Pearson and senior FT staff after much deliberation increasingly came to recognise the appeal of an alternative owner. The big question for Mr Fallon was who was a suitable owner. This week, Axel Springer executives flew to London, confident that they could seal a deal to be announced by the time Pearson was due to report earnings on Friday.

Their “best and final” offer, backed by the Axel Springer supervisory board on Wednesday, was worth £750m in cash and came with promises of editorial independence that Pearson and FT managers had made clear would be necessary for a sale to pass muster.

What the Axel Springer executives did not know was that five weeks earlier Pearson had contacted Nikkei’s investment bank, Rothschild, to say that it was ready to talk about the polite overtures the Japanese group had added to the pile of FT takeover pitches in the Strand at least two years ago.

Seizing the chance to turn a domestic champion that still sells 3m newspapers a day into a global digital brand, Nikkei president and chief executive Naotoshi Okada flew with another executive to London this week to meet Pearson chief Mr Fallon. For a supposedly ponderous Japanese company, it had moved with stunning speed.

In a secretive process at least three other companies had also been approached — Bloomberg, the financial information provider that had made an informal approach in 2013; its rival Thomson Reuters; and the French media group Vivendi. Pearson’s code name for the FT was Falstaff, after the hard-drinking Shakespearean royal sidekick, while Nikkei dubbed Pearson Pigeon, itself Nest and the FT Falcon.

But the others had dropped out long before early afternoon on Thursday, when a report on FT.com informed Axel Springer executives that — while they appeared to be the lead contender — the publisher of Japan’s biggest business newspaper was also in the race.

Nikkei’s headline-grabbing terms, also coupled with promises of editorial independence, were agreed only in a last-minute phone call on Thursday. Confronted with a tight deadline Nikkei put in an offer almost £100m richer than the German bid.

With the London market still open, “things moved very quickly”, said one person involved. The two sides agreed that if they could sign a deal by 2pm, they would announce it by 3pm. The rapidly agreed announcement took a few minutes longer, until 3:13pm, but it was not until just before 3pm that the news reached Axel Springer, in a phone call from Mr Fallon to his opposite number, Mathias Döpfner. He was mortified.

Within an hour, Mr Fallon was addressing an overflowing conference room on the top floor of the FT’s Southwark Bridge headquarters, close to the reconstruction of Shakespeare’s Globe theatre. Beside him stood John Ridding, the FT’s commercial head, and editor Lionel Barber.

As journalists around the globe tuned in to a noisy conference call, Mr Ridding hinted at both past frustrations and future promise. “This is really a story about fulfilling our potential,” he told staff.

Letter in response to this report:

Tips for western managers dealing with the Japanese / From Jeremiah J Sullivan

Reserving judgment until new owner proves its worth / From Janne Salonen

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