LONDON (AP) - Two of the world’s biggest publishing houses are to link up in a deal that will bring the writings of classics like George Orwell’s “1984” and this year’s literary phenomenon “Fifty Shades of Grey” under one umbrella.
Confirmation that Pearson will merge its Penguin Books division with Random House, which is owned by German media company Bertelsmann, will create the world’s largest publisher of consumer books, with around a quarter of the market.
As well as publishing books from authors such as John Grisham, Random House scored a major hit this year with E.L. James’ “Fifty Shades, ” a steamy novel about a submissive college student and a dominant entrepreneur. Penguin has a strong backlist, including Orwell, Jack Kerouac and John Le Carre.
The combined company will control 26 percent of the global consumer publishing market, leaping ahead of the 17 percent share of French publisher Lagardere, according to research by Espirito Santo Bank.
The announcement may also lay to rest the ambition of Rupert Murdoch’s News Corp. of netting Penguin. Reports over the past couple of days have indicated that News Corp. had expressed an interest in buying Penguin for 1 billion pounds ($1.6 billion) in cash. News Corp. owns HarperCollins, another big publishing house.
“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,” said Marjorie Scardino, chief executive of Pearson.
The closing of the deal is scheduled to take place in the second half of 2013 following regulatory approval.
“We believe the tie-up is a sensible one, although it is clearly a defensive response to the long-term pressures affecting the industry, including dramatic growth in digital retail channels, self-publishing and digital reading,” said Jonathan Jackson, head of equities at Killik & Co.
“The gorilla of the book business is no publisher, it’s Amazon and it will stay that way,” they said in a research note.
Bertelsmann and Pearson agreed that they would not sell any part of their stakes in the joint venture for three years. After five years, either partner could trigger a stock market flotation of the venture.
Pearson shares rose 0.3 percent to close at 1,225 pence in London.
In 2011, Random House reported revenues of (EURO)1.7 billion ($2.2 billion) and operating profit of (EURO)185 million. Penguin had revenues of 1 billion pounds and an operating profit of 111 million pounds.
Pearson, meanwhile, reported that its operating profit in the first nine months of the year fell 5 percent, although revenue increased by 5 percent. Revenue from Penguin was down 1 percent when stripping out the impact of fluctuating currency values.
The company attributed the profit drop to last year’s sale of its half share of FTSE International, a joint venture with the London Stock Exchange.
Penguin is one of two publishers being sued by U.S. government for alleged e-book price fixing. A trial is scheduled for next summer.
David Rising in Berlin contributed to this story.
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