Penguin and Random House Confirm Merger

on Oct 29, 2012

On Monday 29 October Pearson (LON:PSON) confirmed its publisher Penguin will be merging with the publishing firm Random House.

**Pengiun-Random House Tie Up**
The confirmation came as Pearson released its third quarter results, which show revenues falling by 1 percent compared to the same period in the previous year.
The newly-created joint venture will be named Penguin Random House. The German company Bertelsmann (FRA:BTG4) will own a majority stake of 53 percent, while Pearson will retain 47 percent. According to Pearson’s chief executive Marjorie Scardino, the tie-up would “greatly enhance” Penguin’s fortunes and opportunities.

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“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.” commented Mr Scardino.
Bertelsmann is expected to nominate five directors to the Board of Penguin Random House, while Pearson will participate with four. Chief executive of the newly created venture will be Markus Dohle, Random House’s CEO, while Penguin’s chief executive John Makinson will be chairman.

“The organisation will generate synergies from shared resources such as warehousing, distribution, printing and central functions.” the statement said. According to the companies the Penguin Random House’s “level of organic investment in authors and new product models will exceed the total investment of Penguin and Random House as independent publishing houses.”

!m[Penguin Slips Through Rupert Murdoch’s Fingers and Takes Random House’s Offer](/uploads/story/659/thumbs/pic1_inline.png)In 2011, Random House’s revenues amounted to €1.7 billion (£1.5 billion) with an operating profit of €185 million (£149 million). Meanwhile, Penguin recorded revenues of £1 billion (£622 million) and a £111 million (£69 million) operating profit. Based on recent results, analyst expect the two businesses to generate combined annual revenues of around £2.5 billion (£1.56 billion) and have a market share in the UK of about 25 percent.

Because the newly formed Penguin Random House will be responsible for a quarter of all paper-book sales in the UK, the tie-up will probably face an inquiry from the competition commission. However, analysts believe the inspection is likely to be waved through, as regulators have already allowed the music industry to be consolidated to only three big players, recognising that the changing market environment means scale is required to survive. If they win the regulators’ approval, the two companies hope to wrap up the deal in the second half of next year.
Pearson’s shares jumped 1.8 percent to £1,244 in the start of today’s trading session but later lost ground and fell below their Friday closing level.
**Penguin Slips Through Murdoch’s News Corp Fingers**
Over the weekend major news agencies reported that NewsCorp had approached Penguin with a possible cash offer of up to £1 billion, threatening the planned tie-up with Random House.
The Guardian reported that many of Penguin’s authors and agents were “terrified” at the prospect of a NewsCorp takeover.
“The idea of News Corp taking over Penguin is nightmarish for our book. I don’t think we’d see a paperback edition published by them and certainly not any updated editions. I don’t have the same fears with Random House, which I feel have integrity.” said Martin Hickman, co-author of Dial M for Murdoch, which looks at one of the biggest scandals in the media industry.
The latest confirmation of the Penguin Random House tie-up has put an end to the speculation of possible NewsCrop interference in the deal.


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