Merger of Penguin and Random House on the horizon
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The Penguin Group

The Penguin Group

Two giant book publishers, Bertelsmann SE & Co. and Pearson Plc are negotiating a possible merger of their two publishing divisions, Random House and Penguin, respectively. A merged entity would be designed to take back leadership of the industry from the technology intruders, including Amazon.com Inc. The Penguin and Random House merger would be, certainly, a strong response of book publishers to the current strategic challenges which they face.

Merger talks

Pearson, which has been the owner of Penguin since 1970, confirmed merger talks with Bertelsmann. Pearson and Bertelsmann want to combine their publishing assets, Penguin and Random House, respectively. Person added that the two book publishers had not reached any agreement on the Penguin and Random House merger, stating that the merger talks might not lead to the deal.

The talks on the Penguin and Random House merger are caused by the growing popularity of ebooks. According to a source familiar with the matter, Bertelsmann would have a stake of over 50 percent in the merged entity. As it was stated by the source, several issues had not been resolved and the parties might break off negotiations. Certainly the Penguin and Random House merger would give each company more scale.

According to data, Penguin is valued between £650 million to £900 million. As for the value of Random House, it is not available as the parent company, Bertelsmann, is privately owned. Paul Richards, an analyst with Numis Securities, noted that the Penguin and Random House merger would be able to make no less than £40 million of savings.

However the Penguin and Random House merger may face competition scrutiny as the merged entity would control approximately a quarter of US and UK book and ebook sales. Their competitors on the market such as Hachette Livre and News Corporation, just to mention two, are likely to inform competition authorities both in the US and UK to review the deal as the Penguin and Random House merger would have approximately a 27 percent share in the Britain’s book market and as much as 25 percent in the US.

Tough times for book publishing industry

Book publishing industry has been facing many challenges for the last decade as online businesses, including Amazon.com Inc., Google Inc. and Apple Inc., attempt to take away what does not rightfully belong to them, according to book publishers. Online retailers as well as supermarkets are doing whatever it takes to get new consumers, making it harder for specialist book chains and booksellers to carry on. Therefore book publishers are left with fewer places to sell their own products. Moreover, Amazon.com Inc., Apple Inc. and Google Inc. are currently redefining the book publishing industry and the new meaning of the industry does not suit book publishers at all.

The consolidation process within the biggest book publishers has been anticipated by analysts as the book publishing industry is trying to restore the balance of power in the market. Lorna Tilbian, an analyst with Numis Securities, stated: “Consolidation is the order of the day, and technology and tablet computers have given it extra momentum. They [publishers] have got to gang together to have enough clout to take on the technology giants that have transformed the industry.” The Penguin and Random House merger seems to be aiming at regaining the power.

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