Oct. 29: Penguin Books is being merged with Random House to create the world's leading consumer publisher, it was announced a day after reports emerged that Rupert Murdoch's News Corp group could bid for Penguin.
The deal would consolidate Random House's position as the largest consumer book publisher in the English-language world, giving the combined companies greater scale to deal with the challenges arising from the growth of e-books and the rise of Internet retailers like Amazon.
Penguin owner Pearson, the education and media publisher, said the newly created joint venture, which will bring together writers Ken Follet, Terry Pratchett, EL James and 2012 Nobel prize winner Mo Yan, would be named Penguin Random House.
Bertelsmann, which owns Random House, will hold 53 per cent of the venture and nominate five directors to the board, while Pearson would own the rest and nominate four. Both must retain their share in the venture for at least three years.
Bertelsmann and Pearson would share executive oversight, with Markus Dohle of Random House serving as chief executive and John Makinson of Penguin becoming the chairman.
"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," said Marjorie Scardino, chief executive of Pearson, which is based in London.
By taking control of the company, Bertelsmann, which is based in G�tersloh, Germany, hopes to avoid the problems that plagued a 50-50 partnership with Sony of Japan, in which the two companies combined their music recording divisions. The venture, Sony BMG, was riven by management turmoil and differences over strategy, prompting Bertelsmann to sell its share to Sony eventually.
"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, chief executive of Bertelsmann, in a prepared statement.
Analysts have raised questions about possible regulatory hurdles to the deal, given that the combined companies would have around one-quarter of the consumer publishing business in markets like the US. Teams of lawyers from both companies are said to have been huddling in New York for weeks to examine these and other issues related to the deal.
Pearson and Bertelsmann said on Monday that "the combined organisation'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".
Some literary agents, however, were unimpressed by the prospect of a combined Random House and Penguin, responding to reports of a possible deal last week by saying it could reduce the number of outlets for authors.
The companies said the agreement would exclude certain assets, including Random House's trade publishing business in Germany. Pearson will retain the right to use the Penguin brand in its education business, which has become the focus of the company's plans for the future.
Analysts have said the deal could spur further consolidation in the book publishing business, which has remained more fragmented than, say, the music business. Another publisher, the HarperCollins division of News Corp, was said to be interested in Penguin.
But Bertelsmann and Pearson accelerated their talks over the weekend after reports last week, and they said on Monday that they hoped to close the deal in the second half of 2013. Pearson said the deal is not subject to shareholder approval.
News Corp's interest in Penguin was first reported in The Sunday Times, a London paper that is also owned by News Corporation. According to The Times, News Corp was exploring a cash offer of $1.6 billion.
New York Times News Service and Reuters