Less than a week after confirming merger talks while averring that “there is no certainty that the discussions will lead to a transaction,” the discussions have lead to a transaction, or at least a proposed transaction. On Monday, Pearson PLC and Bertelsmann AG announced they have reached a deal to merge Penguin Group and Random House, their respective publishing operations.
The talks may have been spurred to conclusion by reports over the weekend that News Corp., which owns HarperCollins, was preparing its own, unsolicited bid for Penguin, potentially busting up what Pearson and Bertelsmann apparently had been negotiating for several months.
As I noted in the most recent Weekly Update, the proposed merger will have to pass antitrust scrutiny in the U.S. and in Europe — a process that was likely to be painstaking in any case but will be doubly complicated in this one by the U.S. Justice Department’s still-pending price-fixing lawsuit against Penguin, Macmillan and Apple over agency pricing of ebooks.
Under the proposed deal, Bertelsmann would own 53 percent of a new joint venture — to be called Penguin Random House — while Pearson would own 47 percent.
Some measure of consolidation — or attempted consolidation — is all but inevitable in the publishing industry as it grapples with radical changes to its long-standing business model that are eroding publishers’ pricing power, just as happened in the music business. The process of consolidation has been anything but smooth in the music industry, however, and some joint ventures that came out of it — notably the Sony BMG joint venture — proved unworkable.
Pearson and Bertelsmann said they expect the Penguin Random House deal to close in “the second half of 2013.” That could prove optimistic.