Penguin Random House Publishing Mega-Merger Thwarts Murdoch

In a defensive and offensive move, two major European media companies, Bertelsmann and Pearson, are combining their book publishing divisions, Random House and Penguin, exponentially increasing their reach and scale in light of prodigious growth from e-books and digital retailers. 

"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," stated Pearson CEO Marjorie Scardino in a press release. 

The merger seals Random House’s leadership as the largest English-language consumer book publisher worldwide, and parent Bertelsmann will have the majority share at 53%. And no, web wags, it won't be called Penguin House or Random Penguin.

Penguin chairman and CEO John Makinson will be chairman of Penguin Random House, and Random House CEO Markus Dohle will have the same role at the new venture.

“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,” commented Thomas Rabe, CEO of Bertelsmann.

The deal was announced after Rupert Murdoch’s News Corp reportedly eyed tendering a £1bn offer from their publishing arm, HarperCollins, which would have started a bidding war, and if successful, tarnished Penguin’s "gold-plated' brand identity" as the Guardian puts it.

An agent representing authors from all three houses, remaining anonymous for fear of future reprisal told the Guardian, "Authors have told me they are frightened by a Random House takeover, but terrified by a HarperCollins one.” A Penguin author added, “if Penguin ends up with HarperCollins that would be a terrifying prospect. It could well lead to Murdoch making an approach for the [Pearson-owned] FT."

Penguin's Makinson calmed those fears by saying he’s ruled out accepting a counterbid from News Corporation, and that the venture with Bertelsmann is a done deal.

German-based Bertelsmann’s majority stake in the merged venture would preclude problems faced by their 50/50 deal with Sony, which merged their music recording divisions into Sony BMG, but was plagued by strategic and management issues and caused Bertelsmann to eventually sell its share to Sony. 

Bertelsmann and Pearson hope to close the deal, which is not subject to shareholder approval, in the second half of 2013. The new joint venture would bring the likes of Ken Follett, Terry Pratchett, "Fifty Shades of Grey" publishing phenom EL James and 2012 Nobel prize winner Mo Yan, under one tent, named Penguin Random House.

Scardino’s recent announcement of her imminent departure after 16 years at the helm caused speculation that Pearson’s remaining media assets may be sold as the focus shifts to its more dominant education division. Pearson recently acquired educational services company EmbanetCompass for $650 million in cash.

Random House is basking in record-breaking sales of the "Fifty Shades" trilogy by James, with its English-language imprints selling more than 30 million copies between March and June, evenly divided between the trade paperback and e-book editions.

While Random House is strong in the U.S. and the U.K., Penguin’s presence in fast-growing developing markets is dominant. Together, they're a formidable brand in the embattled book and digital publishing world. Mr. Murdoch, your move...