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| Penguin and Random House owners agree joint venture | Penguin and Random House owners agree joint venture |
| (about 1 hour later) | |
| Publisher Pearson says it has agreed a deal with German media group Bertelsmann to combine their Penguin and Random House businesses. | Publisher Pearson says it has agreed a deal with German media group Bertelsmann to combine their Penguin and Random House businesses. |
| href="http://www.pearson.com/news/2012/october/pearson-and-bertelsmann-agree-consumer-publishing-partnership--p.html?article=true" >Under the terms of the deal, the two businesses will be run in a joint venture called Penguin Random House. | |
| Bertelsmann will own 53% of the joint venture, while Pearson will own 47%. | Bertelsmann will own 53% of the joint venture, while Pearson will own 47%. |
| The two firms said last week that they were discussing a deal. A report at the weekend also said News Corporation was planning a bid for Penguin. | The two firms said last week that they were discussing a deal. A report at the weekend also said News Corporation was planning a bid for Penguin. |
| The Sunday Times reported that News Corp - which owns publisher HarperCollins - was prepared to make a "substantial cash offer" for Penguin, expected to be about £1bn. | The Sunday Times reported that News Corp - which owns publisher HarperCollins - was prepared to make a "substantial cash offer" for Penguin, expected to be about £1bn. |
| 'Enhanced opportunities' | 'Enhanced opportunities' |
| The tie-up between Penguin and Random House marks the first deal between the world's big six publishers. The others are Hachette, HarperCollins, Macmillan and Simon & Schuster. It would bring together the publishers of the Fifty Shades series and Jamie Oliver's cookbooks. | |
| When news of the talks emerged last week, industry observers said that such deals were inevitable as firms sought to adapt to the changing publishing landscape. | When news of the talks emerged last week, industry observers said that such deals were inevitable as firms sought to adapt to the changing publishing landscape. |
| The rapid take-up of ebooks means publishers are now attempting to bolster their negotiating strength, most notably with Amazon. | The rapid take-up of ebooks means publishers are now attempting to bolster their negotiating strength, most notably with Amazon. |
| Pearson chief executive Marjorie Scardino, who is leaving the firm at the end of the year, said: "Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House... will greatly enhance its fortunes and its opportunities. | Pearson chief executive Marjorie Scardino, who is leaving the firm at the end of the year, said: "Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House... will greatly enhance its fortunes and its opportunities. |
| "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." | "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." |
| John Makinson, chairman and chief executive of Penguin, will be chairman of the merged group, with Random House boss Markus Dohle becoming chief executive. | |
| Based on recent results, combining the two firms will create a business with annual revenues of about £2.5bn and about one-quarter of both the UK and US book markets. | |
| In 2011, Random House's revenues were 1.7bn euros (£1.5bn) with an operating profit of 185m euros. Meanwhile, Penguin recorded revenues of £1bn and a £111m operating profit. | In 2011, Random House's revenues were 1.7bn euros (£1.5bn) with an operating profit of 185m euros. Meanwhile, Penguin recorded revenues of £1bn and a £111m operating profit. |
| London-based Penguin employs 5,500 people across the world, with almost 1,000 in the UK, and last year accounted for about 11% of the UK market. Random House has 5,300 global staff and accounted for almost 15% of the UK market last year. | |
| Competition questions | |
| Given the size of the combined group, the competition authorities may look closely at the tie-up, analysts said. | |
| "In the UK the market share will be around 27%, so they may have to divest themselves of some non-core interests," said Philip Jones from the Bookseller magazine. | |
| However, he said given the dominance of Amazon in digital books, such a move would be contentious. | |
| "Amazon has 90% of the ebook market - if [the competition authorities] allowed that to happen, how can they block a merger that gives Penguin Random House 27%?" | |
| The joint venture is subject to regulatory approval, but the two firms hope the deal will be completed in the second half of 2013. | The joint venture is subject to regulatory approval, but the two firms hope the deal will be completed in the second half of 2013. |
| In a trading update, also released on Monday, Pearson said overall sales had increased by 5% in the first nine months of the year, with "good growth" at the Financial Times Group and at its International Education division. | |
| However, operating profits were down by 5%, largely due to the sale of FTSE boosting revenue in the same period a year earlier. |