NEW YORK — London-based Pearson secured Simon & Schuster’s non-consumer properties Sunday for $4.6 billion, beating groups headed by former junk bond king Michael Milken and leveraged buyout specialist Kohlberg Kravis Roberts.
Simon & Schuster parent Viacom said that the $3.8 billion in net after-tax cash proceeds to be raised by the sale would be used to repay debt. Viacom also noted it would retain Simon & Schuster’s consumer operations as well as the publishing house’s venerated name.
Lehman Bros. analyst Larry Petrella called the winning bid generated by the auction “better than I was looking for.”
The businesses spun off by Simon & Schuster comprise the world’s largest educational and computer book publishers, with annual sales of $2 billion. The funds they’re commanding will help clean up Viacom’s balance sheet considerably, reducing its current debt load of $8.4 billion to $4.6 billion.
Pearson will keep the educational properties picked up by the acquisition, but has agreed to sell Simon & Schuster’s professional and reference publishing businesses to Hicks, Muse, Tate & Furst for $1 billion. Pearson, in addition to the Financial Times and a half-interest in the Economist, owns global educational publisher Addison Wesley Longman.
Hicks Muse, a Dallas-based investment firm, was believed to have been in partnership with Pearson during the submission of the winning bid.
Milken’s unsuccessful bid, which was made with cable giant Tele-Communications Inc. and Rupert Murdoch’s News Corp., was for all of Simon & Schuster, even though the group’s main interest lay in the electronic publishing side of the business. TCI Ventures president Gary Howard acknowledged that it had lost in an analyst conference call on Friday.
That part of Simon & Schuster retained by Viacom publishes more than 2,100 titles a year under 34 trade, mass market, children’s and new media imprints. Viacom called its 1997 performance “record setting,” as 56 of its books reached the New York Times’ best-seller list and 11 weighed in at No. 1.
The purchase of Simon & Schuster by Pearson marks a further incursion into U.S. publishing by foreign firms. German media giant Bertelsmann, which already owns Banam Doubleday Dell, is in the process of adding Random House, and Australian-based News Corp. owns HarperCollins.
Viacom chairman Sumner M. Redstone heralded the sale as “an extremely significant step in our strategic goal to become an entertainment-driven enterprise” and praised the acquisitor for understanding “the value of these businesses.”
Redstone confirmed in January that Viacom would be shopping its non-consumer publishing assets, in part to strengthen its capital structure. Investment bank Morgan Stanley & Co. assisted Viacom on the sale, for which all bids were due last Wednesday.
The transaction, expected to be completed in the third quarter, is subject to regulatory approval. Viacom stock closed Friday up 25¢ to $58.50.