PUBLISHING group Pearson yesterday unveiled plans to merge its Penguin books arm with German-owned Random House in a moved aimed at fighting back against Amazon and Apple in the e-book revolution.
The two companies said the tie-up will deliver “significant benefits” including reduced costs and the ability to invest more in authors and digital technology than they could on their own.
The combined company, to be called Penguin Random House, will be home to writers as diverse as Random House’s Jack Reacher creator Lee Child and Fifty Shades of Grey’s EL James, and Penguin’s long list of classical authors such as Charles Dickens and Jane Austen.
The business will have an estimated quarter share of the market for English language book sales and generate annual revenues in the region of £2.5 billion.
Penguin’s owner Pearson, which also publishes the Financial Times, will have a 47 per cent stake with Random House’s German owner Bertelsmann holding the rest. Penguin chairman and chief executive John Makinson will be chairman with Random House chief executive taking up the same position in the merged company.
The deal requires regulatory clearance which Pearson’s chief financial officer, Robin Freestone, described as a “complicated issue” but he was quoted as saying the company would be prepared to sell “bits and pieces” to get it through.
There is also the possibility that a rival party may derail the partnership, with News Corporation, owner of HarperCollins which has a major distribution operation in Glasgow, reportedly interested in making a £1bn offer for Penguin.
Confirmation of a deal is understood to have come after months of Pearson board discussions.
Pearson chief executive Marjorie Scardino said the consumer publishing industry was going through a period of “tumultuous change, propelled by digital technologies and the giant companies that dominate them”.
She added: “The book publishing industry today is remarkable for being composed of a few large, and a lot of relatively small companies, and there probably isn’t room for them all – they’re going to have to get together.”
She said the two publishers will be able to be more adventurous in trying new models in the world of digital books and digital readers.
Analysts at Numis said the well-flagged merger was “a sensible deal that should generate healthy synergies”.
Jonathan Jackson, head of equities at Killik, also welcomed the deal but said it was “clearly a defensive response to the long-term pressures affecting the industry, including dramatic growth in digital retail channels, self-publishing and digital reading”.
The power of big global publishers, and their ability to set prices, has been eroded in recent years by the boom in digital sales and the rise of Amazon which controls an estimated two-thirds of US print and e-book sales.
London-based Penguin employs 5,500 people worldwide, with around 950 in the UK. Random House has 5,300 staff globally and last year its sales accounted for just under 15 per cent of the UK market, compared with Penguin’s 11 per cent.
Pearson, which is also a major educational publisher, issued a trading update yesterday, showing sales rose 5 per cent in the first nine months of the year. Operating profits fell 5 per cent, reflecting the sale of assets, acquisition costs and weakness in the UK professional training market. Shares in Pearson closed up 4p at 1,225p, valuing the company at just over £10bn.
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