PEARSON IS in talks to combine its Penguin book publishing unit with Bertelsmann’s Random House as the media companies try to bulk up in response to a surge in providers of electronic books.
The merged company would have combined revenue of about €2.3 billion, based on 2011 annual reports. No agreement has been reached and the discussions may not lead to a transaction, Pearson said in a statement.
Christian Steinhof, a spokesman for Bertelsmann, referred to Pearson’s statement and declined to comment further. Bertelsmann chief executive Thomas Rabe, who took over in January, is looking for acquisitions to reduce the company’s dependence on Europe and expand its digital businesses.
Pearson is seeking to boost its education unit and has selected John Fallon, its head of education, to replace chief executive Marjorie Scardino, who will step down by the end of the year.
“Strategically it makes sense for Pearson as there are synergies to be gained from the merger,” said Ian Whittaker, an analyst at Liberum Capital Ltd in London.
“In an industry that is facing structural problems, the easiest way to get profits are synergies and cost cutting.”
The combined heft of Random House and Penguin could give the companies more control over the market as book publishers face pressure from big buyers such as Amazon who are able to drive down prices, Mr Whittaker said.
Penguin reported a 3.5 per cent decline in sales to £441 million (€549 million) in the first half. Profits fell to £22 million (€27.4 million) from £42 million (€52.3 million) a year ago, even as its books won two Pulitzer prizes and 132 made the New York Times bestseller list.
Random House revenue increased by 20 per cent in the first half to €947 million. Bertelsmann’s publishing unit profited from sales of Fifty Shades of Grey and rising e-book sales. Earnings before interest and taxes rose by 64 per cent to €113 million. Random House’s e-book sales accounted for 25 per cent of its revenue in the first half of 2012. – Bloomberg
