Deal creates world's largest trade publisher

Media giants Pearson and Bertelsmann agreed Monday to merge their Penguin and Random House businesses, creating the world’s leading trade publisher.

Bertelsmann will own 53% of a new joint venture called Penguin Random House, and Pearson will own 47%. Deal excludes Bertelsmann’s trade publishing business in Germany. Pearson will retain rights to use the Penguin brand in education markets worldwide.

The combo brings together two of the world’s leading English-language publishers, with highly complementary skills and strengths, the companies said in a statement. Random House is a leader in the U.S. and the U.K. while Penguin has a strong presence in fast-growing developing markets.

Bertelsmann will nominate five directors to the board of Penguin Random House and Pearson four. Penguin chairman-CEO John Makinson will be chairman of the combined companies, Random House CEO Markus Dohle will be chief executive.

The partners said they pursued the deal after reviewing long-term trends in the business, which require a stronger platform and greater resources to invest in content, new digital publishing models and high-growth emerging markets. They expect cost savings in warehousing, distribution, printing and central functions but also promised that the venture’s level of organic investment in authors and new product models would exceed the total investment of either one independently.

For 2011, Random House reported revenues annual revenue of about $2.4 billion and operating profit of $258 million.

Penguin had revenues of $1.6 billion and operating profit of $178 million.

Deal requires both partners to hang on to their entire stake in the venture for at least three years.

“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,” said Pearson’s outgoing CEO Marjorie Scardino.

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