Random House agrees merger with Penguin

PEARSON and German media giant Bertelsmann have agreed a deal to merge their respective book publishing units Penguin and Random House, creating the world’s largest company of its kind as they grapple with a growing threat from digital book sellers such as Amazon.

The firms have inked a deal despite a late bid from Rupert Murdoch’s News Corporation. Pearson will take 47 per cent of the new company – which will be called Penguin Random House, and will have joint revenues of more than £2.5bn.

Markus Dohle, Random House’s chief executive, will lead the joint venture, while Penguin’s head John Makinson will become chairman.

Pearson, which also runs the Financial Times, has owned Penguin since 1970 but it has become a smaller part of the business as it has expanded its education division.

Outgoing chief executive Marjorie Scardino said: “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.”

The news came as Pearson revealed a disappointing set of results for the first nine months of the year. While sales rose five per cent, Pearson’s operating profit was down five per cent, as North American education was hit by shrinking US budgets.

ADVISERS PENGUIN’S TIE-UP WITH RANDOM HOUSE

SIMON MARCHANT
FRESHFIELDS

Simon Marchant at London law firm Freshfields took the lead on Pearson’s side of the deal. Marchant leads Freshfields’ London-based M&A business along with Oliver Lazenby, who also worked on the merger. The two were supported by antitrust partner Alastair Chapman, IP partner Chris Forsyth and counsel Jill Delaney.

Marchant, who has done stints for Freshfields in New York and Hong Kong, where he headed the Asia business, has worked on a number of high-profile deals, including the $20bn take-private of De Beers and Vodafone's $190bn purchase of Mannesmann.

Lazenby has worked on the $7.3bn sale of FEMSA’s beer business to Heineken in 2010, and 3i Group’s acquisition of Mizuho Investment Management.

Pearson was also advised by US law firm Morgan Lewis & Bockius.

Bertelsmann was advised by a team from Slaughter and May, led by corporate partners Charles Randell and Craig Cleaver, supported by associates Chris Neubauer, Daniel Okusaga and Carsten Wettich.

The team also includes competition partners Philippe Chappatte and John Boyce.

Both companies did their financial due diligence internally.