Talk that Pearson (PSON) may have found a buyer for the Financial Times Group in Rupert Murdoch, while sending the stock up 2.5%, does not change the investment case. The FTSE 100 publisher?s fortunes remains very much tied to a struggling US education textbook market.

Rumours that Murdoch is co-operating with the Abu Dhabi Media Group to buy the owner of the Financial Times newspaper and The Economist magazine comes ahead of News Corporation (NWS:NDQ) splitting out its newspaper and entertainment arms on Monday (1 Jul). It also follows Warren Buffett?s string of US newspaper asset purchases in the past 19 months via his Berkshire Hathaway (BRK:NYSE) investment vehicle.

Murdoch was one of the first newspaper proprietors to construct a pay wall around his established brands, notably the Wall Street Journal and The Times in London. The Financial Times has also been an early adopter of the pay wall and with 2012?s 18% growth in digital subscriptions to 316,000 it has arguably succeeded where Murdoch?s attempts to monetise News Corporation?s online content have yet to prove themselves.

The actions of the newspaper baron, reported to be ready to initially buy 25% of the Financial Times Group with his Middle Eastern partners acquiring 75%, while fascinating should not distract from the key problem facing Pearson which is a slowdown in US school spending. The first-quarter interim management statement (26 Apr) was accompanied by earnings downgrades, the first for many years.

Its US kindergarten to Year 12, or K12, textbook business is under intense pressure. This market accounts for about 15% of group profits. The firm confirmed that ?K12 markets remain weak? at the first-quarter update but the risk is they get much weaker and a reaffirmed expectation for flat 2013 operating profits may need to be abandoned, even if the sale of the Financial Times Group generates exceptional gains.

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Issue Date: 28 Jun 2013