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Random House and Penguin to Be Combined | Random House and Penguin to Be Combined |
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PARIS — Two European media companies, Bertelsmann and Pearson, confirmed Monday that they had agreed to combine their book publishing divisions, Random House and Penguin, creating the largest consumer book publisher in the world. | |
The deal would give the combined companies, already two of the biggest English-language publishers, an even greater scale to deal with the challenges arising from the growth of e-books and the power of Internet retailers like Amazon.com. | |
Together, the combined publishers would have a global market share of slightly more than 25 percent, and a book list that includes contemporary best-sellers like Random House’s “Fifty Shades of Grey” trilogy and Penguin’s back list of classics from authors like George Orwell. | |
“That is very attractive in a business that is going to become more and more digital,” said Douglas McCabe, an analyst at Enders Analysis in London. | |
Under the agreement, no cash is changing hands; Bertelsmann, which owns Random House, would control 53 percent of the combined entity, to be called Penguin Random House, with Pearson owning 47 percent. | |
Bertelsmann and Pearson said they would share executive oversight, with Markus Dohle of Random House serving as chief executive and John Makinson of Penguin becoming chairman. The combined company, to be based in New York, would have annual revenue of about $3.8 billion. | |
Thomas Rabe, chief executive of Bertelsmann, said in an interview that the merger would allow the combined company to invest more in digital operations and emerging markets, where book sales are growing faster than in developed markets like the United States and Western Europe. | |
Mr. Rabe said the merger would allow the publishers to cut costs in their back offices, making it possible to spend more on authors, too. | |
“The intention is to continue to invest in the creative potential of the businesses,” he said. | |
Mr. Rabe added in a conference call that while there were opportunities for “economies of scale,” these cuts would not affect the publishers’ individual imprints, which work directly with the authors. | |
“While we will be combining the strengths of both companies, we will be maintaining the distinctive identities of all our imprints,” he said. | |
Enthusiasm about the agreement has been more muted among literary agents, however, with some responding to reports of a possible deal last week by saying it could reduce the number of outlets for authors. | |
Mr. Dohle, in a letter to Random House authors, insisted that the new entity would be “author- publisher- and editor-centered.” | |
“Your relationship with your editor and your publishing team will be unaffected by the new company,” he wrote. | |
Mr. Makinson, currently the chief executive of Penguin, said in an interview that consolidation was inevitable as the industry adapts to the imperatives of the digital revolution. | |
“We decided it was better to get in early rather than be a follower,” he said. | |
Even in the old-fashioned world of printing in ink on paper, Mr. McCabe said there would be advantages to greater scale in a world where the retail side of the business was also consolidating around fewer, more powerful chains that are often focused on marketing a handful of top titles. | |
“There’s a real advantage to being a superpower when the market is focused on bestsellers,” he said. While small publishers with a niche focus and loyal groups of authors and readers might survive, he said, midsize publishers publishing mass-market books might come under further pressure to combine with competitors. | |
Another publisher, the HarperCollins division of News Corp., has already signaled its interest in consolidation. It was reportedly considering a bid for Penguin when Pearson and Bertelsmann accelerated talks, which had been going on for weeks, and reached an agreement. | |
Pearson said the agreement was not subject to shareholder approval, and Bertelsmann is privately held, so analysts said there was little that competitors could do to stop it, assuming that regulators clear the deal. | |
“The companies are committed to this transaction; there is no way they can walk away,” Mr. Makinson said. | |
Analysts have raised questions about possible regulatory hurdles to the deal, given that the combined companies would have more than a quarter of the consumer publishing business in markets like the United States. 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. | |
Mr. McCabe said he though the deal would be approved, possibly with some concessions. | |
“Authors will be very interested in this, so the process could be more drawn out than they hope,” he said. “This is not a merger of two widget makers that nobody will notice.” | |
European regulators, in particular, tend to scrutinize mergers in media businesses closely if there is concern about any possible loss of what the European Commission describes as “cultural diversity.” | |
By taking control of the company, Bertelsmann, based in Gütersloh, 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 divided by management turmoil and differences over strategy, prompting Bertelsmann eventually to sell its share to Sony. |