News Column

Random, Pearson Merger Could Create Media Giant

Oct. 26, 2012

Leading publishers Random House and Britain's Pearson group confirmed Friday that they are in merger talks that could create the world's biggest media concern.

Pearson, which has owned the Penguin book publishers since 1970, said it was in talks with Bertelsmann, the German media giant which owns international publisher Random House.

Pearson also owns the Financial Times (FT) newspaper in Britain.

The deal was estimated to be worth 2.4 billion pounds (3.8 billion dollars), according to British media reports.

"The two companies have not reached agreement and there is no certainty that the discussions will lead to a transaction," Pearson said in comment to reports about the merger talks.

A spokesman for Bertelsmann said he had nothing to add to the statement.

If the talks are successful, however, they would create the world's biggest book publisher, according to the Guardian newspaper.

The move would bolster both companies in the face of a changing market, driven by the rise of the e-book from the likes of Amazon, Apple and Google, analysts said.

Heavy discounting on books by online retailers and supermarkets added to the woes of the publishing industry.

The merger talks come less than a month after Pearson chief executive Marjorie Scardino said she would step down as chief executive after 15 years at the helm.

Pearson's share price rose by 2 per cent on the London stock market Friday.

Penguin, which blazed a trail in the 1930s by producing high quality, inexpensive paperbacks, has struggled to adapt to the rapid changes in the industry.

Its sales fell by 4 per cent to 441 million pounds in the first six month of this year, as profits nearly halved to 22 million pounds, figures showed.

In 2011, Random House delivered 149 million pounds in operating earnings before interest, tax and depreciation, with a revenue of 1.3 billion pounds.

Analysts in London said that the groups hope that a tie-up would provide them with sufficient assets to compete with the growing challenges faced by the business.

"Strategically it makes sense," said Ian Whittaker, an analyst at Liberum Capital. "Book publishers face the threat of concentrated buyers."

Any deal is likely to be referred to the competition authorities, reports said.

The US Department of Justice earlier this year sued Apple and five publishers, including Penguin, but not Random House, for alleged collusion with Apple to fix the price for e-books.

Four of the five publishers have settled the claims but Penguin has refused to follow suit, pledging to "mount a robust defence" on a matter of principle, reports in the British media said.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH