Tuesday, 23 February 2016

UK and US union pension funds challenge Pearson

UK and US union pension funds fear for Pearson PLC business plans

Serious concerns about the performance of Pearson PLC, the world’s biggest education publisher, have prompted a trans-Atlantic alliance of pension funds – which includes UNISON’s staff pension fund – to call on the company to review its business strategy in the wake of four straight profit warnings, tumbling revenue and plunging stock prices.
The coalition of pension funds – representing over 40,000 of Pearson’s voting shares – have lodged a shareholder resolution, which will be heard at the company’s AGM in London later this year. The resolution urges the education conglomerate to look again at its future business plans, and calls on it to end its over-reliance on the education testing programme in the US, which has been affected by a recent change in the law and is also becoming increasingly unpopular over there.
The union pension funds resolution – which aside from UNISON is signed by the Chicago Teachers Pension Fund, Trade Union Fund Managers and 130 individual shareholders – also calls for a halt to the multinational’s plans to create schools for profit in parts of the world where there are no proper state education systems.
Last month Pearson announced that 4,000 jobs (ten per cent of the company’s workforce) were to go across its worldwide operation, in an attempt to turn around a business that has lost 42 per cent from its share value in the last twelve months. Pearson also issued its second profits warning in three months – its fourth under the current chief executive.
Union pension funds are so concerned by the company’s recent business performance that they decided to lay the shareholder resolution, and are holding a shareholder briefing later this month, in advance of the Pearson AGM in late April. Their concern is that without a clear recovery plan, their investment in Pearson stock will continue to fall, jeopardising pension payments to current and future pensioners.
UNISON General Secretary Dave Prentis, whose union holds 33,000 Pearson shares, said: “UNISON will be raising serious concerns about how Pearson Plc is being run at its annual meeting this April.
“The company is failing to respond to changes in the education market in the United States, where it makes 60 per cent of its profits. With the movement against compulsory testing growing in popularity across America, there’s an increasing likelihood that many cash-strapped states could look to reduce or even axe their testing budgets.
“Pearson has put too many of its eggs in the US testing basket and unions are right to be concerned that the company risks gambling away the current and future pensions of hardworking public sector employees. The company is shedding thousands of jobs in an attempt to turn the business around, but this flawed approach won’t address the deeper problems in its main US market.
“Rather than continue to focus the business on politically poisonous high stakes testing, and axing the jobs of thousands of employees, CEO John Fallon should be conducting a wholesale reassessment of Pearson’s strategic vision.”
Pearson analysts, including Liberum’s Ian Whittaker, have pointed out the firm is facing an existential problem, not just a cyclical one. Whittaker said last month’s cost cutting announcement “strengthen[s] our conviction that this company is both facing severe structural headwinds and is showing an unwillingness to face up to its issues.”
The union pension funds believe that by clinging to the status-quo, Pearson has created wholly avoidable financial and reputational risks, eroded shareholder value and poisoned its global brand, increasing the chance that hedge funds will be attracted to the stock.
Randi Weingarten of the American Federation of Teachers, the national affiliate of the Chicago Teachers Union, said: “Pearson could be a company that provides educational products and services critical to the success of students around the world. Instead it has decided to embark on a politically risky path of high-stakes testing and low-fee private schools in the developing world.
“This resolution is about creating a better, more profitable, more economically sustainable firm that works to advance public education in a spirit of collaboration. If maintaining the status-quo is the answer, the Pearson board is asking the wrong question.”

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