Deal Confirmed: Penguin and Random House Combining to Create New Joint Venture

It’s official. A deal bringing Penguin and Random House together is a GO according to official announcements from Pearson (Penguin’s owner) and Bertelsmann (Random House owner).
News of a possible deal was first reported last week and yesterday we added to that story with a report that News Corp. (parent of HarperCollins) appeared to have been interested in bidding for Penguin.

Terms of the Deal (via Pearson)

Under the terms of the agreement, Penguin and Random House will combine their businesses in a newly-created joint venture named Penguin Random House. Bertelsmann will own 53% of the joint venture and Pearson will own 47%.
Bertelsmann will nominate five directors to the Board of Penguin Random House and Pearson will nominate four. John Makinson, currently chairman and chief executive of Penguin, will be chairman of Penguin Random House and Markus Dohle, currently chief executive of Random House, will be its chief executive.
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Under the terms of the agreement, neither Pearson nor Bertelsmann may sell any part of their shareholding in Penguin Random House for three years. To protect Pearson’s interests as a minority shareholder, if Bertelsmann declines a Pearson offer to sell its entire shareholding, Pearson may require a recapitalisation by which Penguin Random House raises debt of up to 3.5x EBITDA, with a dividend distributed to shareholders in line with their ownership. In addition, from five years after completion, either partner may require an IPO of Penguin Random House.

Comments from Leadership

Marjorie Scardino, chief executive of Pearson, said: “Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House – a company with an almost perfect match of Penguin’s culture, standards and commitment to publishing excellence – will greatly enhance its fortunes and its opportunities. 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.“
Thomas Rabe, chairman and CEO of Bertelsmann, said: “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. It will build on our publishing tradition, offering an extraordinary diversity of publishing opportunities for authors, agents, booksellers, and readers, together with unequalled support and resources.”

Publishing Divisions, Imprints, and Final Approval (via Bertelsmann)

The new publishing group will include all the publishing divisions and imprints of Random House and Penguin in the United States, Canada, the United Kingdom, Australia, New Zealand, India, South Africa, as well as Penguin’s publishing company in China, and Random House’s Spanish-language publishing operations in Spain and Latin America. Random House’s Munich-based German-language publishing company, Verlagsgruppe Random House, will not be part of the Group and will remain at Bertelsmann. In the new company, the publishing imprints of Random House and Penguin will continue to publish their books with the autonomy they presently enjoy, and retain their distinct editorial identities.
The closing of the transaction is scheduled to take place in the second half of 2013, following regulatory approval.

We’ve also embedded (below) letters from Markus Dohle, CEO and Chairman of Random House that were sent to Random House authors, clients, booksellers, literary agents, and staff.
It’s going to be interesting to see what scrutiny the deal receives in the U.S. and EU. and what if, any, changes will be asked for before the deal is approved.

Coverage

Pearson to Merge Penguin With Bertelsmann’s Random House (via Bloomberg)

Penguin and Random House had combined sales of about 2.5 billion pounds ($4 billion) and operating profit of 272 million pounds last year. A merger could reduce the publishers’ estimated combined cost base of 2 billion pounds by 2 percent to 3 percent, according to Alex DeGroote, a media analyst at Panmure Gordon & Co. in London.

Penguin, Random House in Deal (via WSJ)
Penguin/Random House merger confirmed (via The Bookseller)
Penguin and Random House agree merger (via Financial Times)

On a Related Note

Pearson, parent of Penguin, released sales and revenue info for nine-months today. Here’s the announcement.

[At] Penguin, sales were down 1% compared to 2011 with the third quarter benefiting from ebooks revenue up 35% on 2011
In North America, textbook publishing markets have been weak in 2012, affected by slower college enrolments, state budget pressures, the transition to Common Core standards and a smaller new adoption opportunity. For the first nine months of the year, total sales for the US School and College textbook publishing industries declined by 17.9% and 4.5% respectively, with the total market down 10.7%, according to preliminary estimates from the Association of American Publishers.

Letter from Random House CEO to Authors
Letter From Random House CEO to Booksellers
Letter from Markus Dohle to Random House Clients
Letter from Random House CEO to Literary Agents
Letter from Random House CEO to Random House Staff

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