Random Penguin walks onto publishing stage

The two rival firms have agreed a merger deal that will create the world's largest book publisher.

by Michael Northcott
Last Updated: 19 Aug 2013

German media outfit Bertelsmann and UK rival Pearson have agreed a deal to merge Random House and Penguin, their respective book publishing divisions. The deal will create a new ‘Penguin Random House’ company, with 53% of the equity owned by the German firm and 47% owned by Pearson, and it will also create the largest publishing house in the world. Pearson has described Penguin as ‘the world’s most famous publishing brand’, and Random House as ‘the leading English language publisher in the US and the UK’. Sounds like a mighty fine match. 

But, unusually, it doesn’t appear that any money will actually be changing hands in the deal. Rather, the merger is designed to consolidate and secure massive market share. If the deal goes off – and that won’t be until the second half of next year at the earliest - the post-merger group will publish about 27% of all books sold in the UK, and 25% in the US. The lack of cash exchange is particularly surprising given that News Corporation’s publishing arm, HarperCollins, wanted to crash the merger with an offer of £1bn for Penguin. 

It is thought that Rupert Murdoch’s firm could still put in a bid with Pearson’s board later this week, but an anonymous insider described the proposed deal to MT as a ‘shotgun wedding’, suggesting that some semblance of an agreement had already been reached before Murdoch pricked his ears. We reckon there is something being kept on the QT – who turns down a billion quid in favour a ‘cash free’ merger?

Anyway, what are the issues triggering such a significant bit of consolidation, you might ask? Well, with the rise of e-readers and digital books sales, it has become increasingly difficult for bookstores to actually shift print editions, meaning that publishers have fewer and fewer places to get their books sold. As Pearson’s outgoing chief executive, Marjorie Scardino, explains: ‘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.’ 

Random House’s portfolio includes big UK money-spinners such as Jamie Oliver, Fifty Shades of Grey author EL James, and lately Olympian diver Tom Daley. Of course, there are the usual steps to go through: regulators on both sides of the Atlantic will need to approve the deal, and the enormous market share that it will afford the two publishers means it is likely to face an inquiry from competition commissioners on both sides of the Pond. 

We’ll keep you posted, but when it comes to this merger it’s probably best not to judge a book by its cover. 

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