US Edition Pearson
£11.28 -16p
Questor says HOLD
"The valuation of FTSE International is quite significantly above our expectations," said Thomas Singlehurst, an analyst at Citigroup.
Indeed, the transaction implies that the London Stock Exchange (LSE) is paying 22.5 times earnings before interest, taxes, depreciation, and amortisation (ebitda) to take full control of FTSE International. "Nobody thought it (FTSE International) made that much money or that it would command that sort of multiple," said Mark Braley, an analyst at Deutsche Bank.
But is Pearson's new-found deal-making prowess a good reason to own the shares?
Financially, the transaction will initially be dilutive to earnings per share, according to Citigroup. However, the broker believes "dilution is only half of the story" because the company now has an £800m war chest to use on future acquisitions, which may be significantly accretive to earnings.
Still, the deal raises questions about Dame Marjorie Scardino's strategy for the rest of the company's financial information businesses, such as the Financial Times, and how they fit in the education publishing giant.
Pearson said the FTSE International sale "marks Pearson's exit from companies that are primarily providers of financial data and strengthens the FT Group's focus on global business news, analysis and intelligence, increasingly delivered through subscription models and digital channels."
However, that line of argument appears somewhat muddled given that some of the FT Group's divisions rely on generating subscriptions by providing financial data combined with news to the financial services industry.
Other potential areas of concern include The Daily Telegraph's exposé of exam standards and education business practices in the UK. Broker Panmure Gordon noted that one of the exam boards under scrutiny is Edexcel, which is wholly-owned by Pearson.
Alex DeGroote, an analyst at the broker, said: "It remains to be seen what the outcome of the investigation is, but Ofqual – the UK regulator – could in theory disqualify a failing exam board."
Edexcel, though, only comprises around 5pc of Pearson group profit, according to Panmure Gordon, and Mr DeGroote concluded that in this context, the fallout from this investigation is unlikely to be "material" to forecasts.
Given that education accounts for around 80pc of Pearson's operating profits, investors really need to base their investment decisions and keep an eye on what is happening in this market, especially in the US as the country provides a large amount of Pearson's revenues and profits.
However, fears about cutbacks in US state spending on education have been lingering for the last four years and analysts do not believe there is any particular catalyst in the near future to trigger significant reduction on educational spending.
On that note, investors should hold on to their shares given they currently trade on a 3.6pc dividend yield and are a relatively low-risk investment.