Pearson and Bertelsmann to merge Penguin Books with Random House

British media and education group Pearson Plc (LON:PSON) and German media major Bertelsmann AG (FRA:BTG4) said they had inked an accord to form a joint venture through the amalgamation of their respective English language publishing businesses Penguin Group and Random House Group Ltd.

The deal has to obtain clearances, including regulatory green light, and is seen to be wrapped up in the second half of next year.

Bertelsmann will hold a 53% stake in the venture, which will be dubbed Penguin Random House, with Pearson owning the remaining 47%. The parties are not allowed to offload holdings in the joint venture for three years after finalisation and each of them may require a floatation beginning five years after close. Bertelsmann’s German trade publishing operations are outside the scope of the deal. In addition, Pearson will retain rights on the Penguin brand for the global education markets.

Penguin Random House’s board will consist of five directors picked by Bertelsmann and four by Pearson. The board will be chaired by Penguin’s CEO John Makinson and Random House’s CEO Markus Dohle will lead the new firm in the capacity of CEO.

According to the companies, the transaction will bring together complementary competences, resulting in a boosted platform and enhanced resources to invest in rich content, new digital publishing models and high-growth emerging markets. Random House has a leading position in the US and the UK, while Penguin boasts a robust footprint in developing countries with fast-growth potential, the companies note.

The parties expect to realise synergies from sharing warehousing, distribution, printing, central functions and other resources. In addition, Pearson and Bertelsmann expect the combination to allow for higher organic investment in authors and new product models than the collective investment of the publishing businesses were they to operate independently.

According to the firms, the merged entity will be the leading consumer publisher worldwide.

Random House posted operating profit of EUR185m (USD238.5m) last year on revenues of EUR1.7bn. Penguin’s operating profit and revenues came in at GBP111m (USD178.3m/EUR138.3m) and GBP1bn, respectively, and its assets stood at GBP1bn