Penguin and Random House to Merge to Create Book-Publishing Giant
German media conglomerate Bertelsmann and U.K.-based Pearson early Monday unveiled a final agreement to combine their book units into a new joint venture called Penguin Random House.
Pending approval, Bertelsmann would own 53 percent of the venture, and Pearson 47 percent.
The venture would exclude Bertelsmann’s trade-publishing business in Germany. Also, Pearson would retain rights to use the Penguin brand in education markets worldwide.
The deal, which came after Sunday's news that Rupert Murdoch's News Corp. was looking to strike its own last-minute deal with Pearson, is subject to regulatory and other approvals and is expected to be completed in the second half of 2013. It is certain to face regulatory scrutiny in the U.S. and perhaps from the European Union as well.
Observers have said the two companies would have a market share of about 25 percent of the English-language book market, with the partners saying in their announcement that they will form "the world's leading trade publisher." Their announcement also spoke of "the world’s leading consumer publishing organization."
The companies bring in nearly $4 billion in revenue. In 2011, Random House reported revenue of €1.7 billion ($2.2 billion), with Penguin reporting $1.6 billion). Operating profits came in at $239 million and $178 million, respectively.
Current Penguin chairman and CEO John Makinson would serve as chairman of Penguin Random House, with Markus Dohle, the current CEO of Random House, becoming CEO of the combined entity.
Bertelsmann would nominate five directors to the board of directors of the venture, with Pearson nominating four. Neither party is allowed to sell any part of their stake in Penguin Random House for three years. Starting five years after completion of the combination, either partner can require an IPO.
The partners said that the combined company "will have a stronger platform and greater resources to invest in rich content, new digital publishing models and high-growth emerging markets," as well as generate synergies from shared resources. They said the new company's level of organic investment in authors and new product models will exceed the combined investment of Penguin and Random House as separate firms.
"The combination brings together two of the world’s leading English-language publishers, with highly complementary skills and strengths," the companies said. "Random House is the leading English-language publisher in the U.S. and the U.K., while Penguin is the world’s most famous publishing brand and has a strong presence in fast-growing developing markets. Both companies have a long history of publishing excellence, and both have been pioneers in the dramatic industry transformation towards digital publishing and bookselling."
The CEOs of the joint venture partners also lauded the benefits of the deal.
“With this planned combination, Bertelsmann and Pearson create the best course for new growth for our world-renowned trade-book publishers, to enable them to publish even more effectively across traditional and emerging formats and distribution channels," said Thomas Rabe, chairman and CEO of Bertelsmann. "It will build on our publishing tradition, offering an extraordinary diversity of publishing opportunities for authors, agents, booksellers and readers, together with unequalled support and resources.”
Added Pearson CEO Marjorie Scardino: "Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers.“