It’s been a rough couple of weeks for stocks in and out of the FTSE 100 index. With a war in Eastern Europe and macroeconomic pressures here in the UK, many once-thriving shares have seen sudden declines. Yet Pearson (LSE:PSON) apparently didn’t get the memo because its stock is up over 17% this week. What’s behind this double-digit growth? And should I be considering it for my portfolio?
The surging momentum behind Pearson shares
I’ve explored this business before. But as a reminder, Pearson is a leading provider of educational material and learning services. Its books and other digital content can be found in most schools as well as universities scattered across the UK and North America.
Usually, when a share price experiences a sudden uptick, it’s often thanks to an encouraging earnings report. But while Pearson did recently release its 2021 full-year results, that’s not the reason why the FTSE 100 stock is on the rise. So, what happened?
The spike was actually caused by the rejection of a £7bn takeover bid from Apollo Global Management. The private equity firm has had its sights locked onto Pearson since November last year. And after a failed takeover bid then, it tried again with an increased offer of 854.2p per share. But this latest attempt met the same fate as Pearson management said “it significantly undervalued the company and its future prospects”.
This seems to have sparked renewed shareholder confidence in the FTSE 100 stock’s long-term perspective leading to this week’s jump. Either that or investors are expecting another higher takeover bid.
What’s next for the FTSE 100 stock?
Apollo has been on the prowl for several FTSE stocks lately. In 2021, it was locked in a bidding war for Morrisons that it ultimately lost. But given it’s now pursuing Pearson, I think it’s fair to say the private equity group is still searching for bargains in the UK stock market.
Now that its latest offer has been rejected, is this the end of the road? Maybe not. Under British takeover law, Apollo has until 8 April to make another bid. Otherwise, it has to withdraw its interest and walk away for six months before being able to try again.
Of course, another private equity group could step into the arena and try its luck with a new bid. And I wouldn’t be surprised if this possibility was a contributing factor to this week’s jump in the FTSE 100 stock. But if that’s the case, then the Pearson share price is currently being bolstered by speculation rather than fundamentals. And in my experience, this could lead to some significant volatility, especially as Apollo’s deadline gets nearer.
Should I buy now?
Pearson’s management clearly believes it has a bright future ahead. But how long it will take to realise that future remains to be seen. In the short term, it looks like the FTSE 100 stock is being driven by expectations of another takeover bid. And in my opinion, investing in a company with the hopes of an acquisition isn’t a prudent strategy. Therefore, I’ll be staying on the sidelines for this one.
