Two European media companies Pearson and Bertelsmann have announced an agreement to create the world's leading consumer publishing organisation by combining Penguin and Random House. The combination is stated to bring together two of the world's leading English language publishers, with highly complementary skills and strengths.
Random House is an English language publisher in the US and the UK, while Penguin is billed as the world's most famous publishing brand, with a strong presence in fast-growing developing markets. Both companies claim to have a long history of publishing excellence, and both have been pioneers in the dramatic industry transformation towards digital publishing and bookselling.
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 percent of the joint venture and Pearson will own 47 percent. The joint venture will exclude Bertelsmann's trade publishing business in Germany and Pearson will retain rights to use the Penguin brand in education markets worldwide.
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.
The two companies believe that the combination will create a highly successful new organisation, both creatively and commercially, with the breadth and investment capacity to deliver significant benefits. Readers will have access to a wider and more diverse range of frontlist and backlist content in multiple print and digital formats. Authors will gain a greater depth and breadth of service, from traditional frontlist publishing to innovative self-publishing, on a global basis.
It is believed that employees of the new organisation will be part of the world's first truly global consumer publishing company, committed to sustained editorial excellence and long-term investment in a rich diversity of content. Shareholders may expect to benefit from participating in the consolidation of the consumer publishing industry without having to deploy additional capital. The combination is subject to customary regulatory and other approvals, including merger control clearances, and is expected to complete in the second half of 2013.
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.
