World's Largest Publishing House Bertelsmann and Penguin Announce Merger Plan

German media company Bertelsmann said Monday it plans to merge its Random House subsidiary with Britain's Penguin, creating the world's largest trade publishing house. The merger would give the joint company a stronger position in the market, but it could prompt a bidding war led by Rupert Murdoch and his News Corp. this week.

Europe's largest media company, Bertelsmann, and Britain's Pearson confirmed Monday that they are preparing to merge two successful units to create the world's largest book publishing house that would bring together Random House and the Penguin Group.

Under the plan, Bertelsmann would obtain 53 percent of the shares in the joint company, with Pearson owning 47 percent. The new company name would be Penguin Random House, according to a statement made by Bertelsmann, based in Gütersloh, Germany, on Monday.

If the competition authorities approve the merger, the deal would be completed during the second half of 2013. Markus Dohle, the current head of Random House, would become the joint company's CEO with John Makinson of Penguin serving as chairman of the board. The merger would not include the Munich-based German operations of Random House, which would remain a 100 percent subsidiary of Bertelsmann.

"With this planned combination, Bertelsmann and Pearson create the best course for the future of our world-renowned trade-book publishers, Random House and Penguin," Bertelsmann CEO Thomas Rabe said in a statement. He said the combined company could more effectively publish books -- both in traditional and digital formats. Rabe spoke of a "milestone" for Bertelsmann.

Despite the merger, Bertelsmann executives stated, both publishing houses would still retain their identities. "Together, the two publishers will be able to share a large part of their costs," Pearson CEO Marjorie Scardino said.

Industry analysts said the merger would give Bertelsmann and Penguin a stronger position in negotiations with fast-growing and powerful e-commerce companies like Amazon, which has not hesitated in waging public battles with major publishing houses to get the conditions it desires.

One-Quarter of World's Book Sales

In 2011, Random House reported revenues of €1.7 billion ($2.19 billion) and, it claims, sold 500 million books globally. Penguin, the traditional British publishing house, had revenues in 2011 of around €1.3 billion. Penguin is best known internationally for publishing discount paperback editions of classic works of literature. Random House also includes the Modern Library imprint dedicated to some of the world's greatest novels. Together, they would be responsible for a quarter of the world's consumer book sales.

The companies first went public about the potential merger of the two mass consumer publishing houses last week. It's also a merger that could draw the ire of Rupert Murdoch, who Britain's Sunday Times has reported is preparing his own offer to acquire Penguin. The paper claims Murdoch's News Corp., which owns mass publisher HarperCollins, wants to prevent the Random House-Penguin merger. The Times reported News Corp. could make a £1 billion ($1.24 billion) offer for Penguin as soon as Wednesday and start a major bidding war. Major newspapers including the Financial Times have written that Bertelsmann could struggle to find funds if Murdoch mounts such an attack.
If Bertelsmann is able to pull through, the deal could provide a needed victory for the company's CEO Rabe. Several weeks ago, Bertelsmann failed in its attempt to acquire 100 percent control of Gruner+Jahr (G+J), Europe's largest magazine publisher, from the Jahr family, which holds a blocking minority of 25 percent. Bertelsmann will continue to hold 74.9 percent of shares in G+J.

dsl -- with wires

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