News Column

Penguin Books to Merge With German-owned Random House

Oct. 29, 2012
book publishing

Media companies Bertelsmann SE and Pearson Plc said Monday they have agreed to merge their respective book publishing units Random House and Penguin.

The deal, which is reportedly worth $3.8 billion (2.4 billion pounds), would create the world's biggest consumer book publishing business, they said.

Germany-based Bertelsmann, Europe's largest media group, will be the dominant partner with 53 percent of the joint venture. Britain-based Pearson will have the remaining 47 percent.

The venture will be mainly for English-language books, with the deal excluding Bertelsmann's huge German book publishing operations. Both firms earn additional revenues by selling their titles for translation into other languages.

Bertelsmann's Random House is the leading book publisher in the United States and Britain.

Pearson, which has owned Penguin Books since 1970, also owns the Financial Times (FT) newspaper in Britain. 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.

The move is likely to bolster both companies in the face of a market that is shifting as e-books sold by the likes of Amazon, Apple and Google become more popular, analysts said.

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

The new venture will have an estimated 25-percent share of the market for English-language book sales.

Competition regulators in some markets are expected to scrutinize the merger. The companies said they hoped to complete the merger in the second half of 2013 after receiving approvals.

The venture will encompass the companies' book units in the United States, Canada, Britain, Australia, New Zealand, India and South Africa as well as Penguin operations in China and Random House operations in Spain and Latin America.

The new company, called Penguin Random House, is to be run by the Random House chief executive Markus Dohle. John Makinson, the current chairman and chief executive of Penguin, will be chairman.

The merger talks, which first became public at the end of last week, come less than a month after Pearson chief executive Marjorie Scardino announced that she would step down after 15 years at the helm.

Scardino, who is leaving the firm at the end of the year, said Monday: "Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House ... will greatly enhance its fortunes and its opportunities."

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

Penguin recorded revenues of 1 billion pounds and 111 million pounds in operating profit. Penguin sales fell by 4 percent to 441 million pounds in the first six month of this year, as profits nearly halved to 22 million pounds, figures showed.

Analysts in London said that the groups are hoping the a tie-up will provide them with sufficient assets to compete with growing challenges faced by the trade in books for the consumer market.

The Sunday Times reported that Rupert Murdoch's News Corp - which owns publisher HarperCollins - tried to scupper the merger plans by planning to make a last-minute "substantial cash offer" for Penguin, reported to have been around 1 billion pounds.

The merger between Penguin and Random House marks the first deal between the world's big six publishers. Analysts said that such deals were inevitable as firms sought to adapt to the changing publishing landscape.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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