Pearson PLC and Bertelsmann A.G., two of the world's biggest media groups, agreed Monday on a plan to combine their book-publishing operations, Random House and Penguin, in what would create the world's largest book publisher.
The joint venture, to be called Penguin Random House, will create a publishing giant that will have more heft at a time when the book business is being rocked by the rise of online retailers and e-books.
The joint venture highlights the headwinds facing publishers from the growth of electronic books and the increasing power of Web retailers such as Amazon.com Inc., Apple Inc. and Google Inc.
The combination of Penguin and Random House, if it clears antitrust scrutiny, would create a book-publishing powerhouse responsible for roughly a quarter of global English-language consumer book sales. In the U.S. alone, it would bring together some of the world's best-known authors. Random House authors in the U.S. include thriller writer John Grisham, "Song of Soloman" novelist Toni Morrison and E.L. James, author of the erotic best seller "Fifty Shades of Grey." Penguin Group authors include crime writer Patricia Cornwell, Pulitzer Prize novelist Junot Diaz and Tom Clancy, author of "The Hunt for Red October" and "Patriot Games."
"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, Pearson's chief executive.
Under the plan announced Monday, Bertelsmann, which is based in Germany, will take a 53% stake in the new joint-venture company and Pearson will hold 47%. Bertelsmann and Pearson didn't disclose the value of the joint venture, but a person familiar with the matter indicated that the equity valuation would be somewhere between $2 billion and $3 billion.
Details of the Penguin-Random House merger follow weekend reports that News Corp interest in Penguin. News Corp.'s interest in Penguin hasn't been confirmed. Neither News Corp. nor Pearson could immediately be reached for comment Monday.
Markus Dohle, chief executive of Random House, would become CEO of the combined company, with John Makinson, the present chairman and CEO of Penguin, taking the role of chairman, Bertelsmann said.
Bertelsmann, for its part, has recently signaled that expanding in the e-book business was a priority, part of a broader push into digital markets.
At a management meeting in September, Thomas Rabe, Bertelsmann's chief executive, said the company was committed to strengthening its key businesses, which include Random House, and emphasized that the emerging demand for digital media would be core to the company's future growth strategy.
The rush of interest in Penguin has been sparked by Pearson's announcement earlier this month that Ms. Scardino, its long-term chief, will retire by 2013. Creation of the joint venture also raises questions about whether Pearson, which publishes the Financial Times and educational books and materials, could be reshaped further following Ms. Scardino's planned departure at the end of this year.
Speculation about the future of the Financial Times has increased following the announcement of Ms. Scardino's departure. A long-term champion of Pearson's ownership of the FT, Ms. Scardino once said the newspaper would be sold "over my dead body."
Rival business information and newspaper publishers including News Corp, Bloomberg L.P. and Thomson Reuters Corp. would all like to own the newspaper, analysts say, and periodically revisit the possibility of bidding for it. But analysts say a sale would likely be subject to rigorous antitrust scrutiny and could be complicated.
A spokeswoman for Bloomberg declined to comment Monday. News Corp and Thomson Reuters couldn't immediately be reached for comment.
"Scardino's departure does make a sale of the FT marginally more likely," said Paul Richards, an analyst with Numis Securities in London. He said, though, that "Pearson doesn't need to sell it and it's just as likely that they would keep it as sell it."
Pearson has moved away from its roots as a media conglomerate in recent years selling a ragtag of assets ranging from stakes in television production companies to London waxwork museum Madame Tussauds. Under Ms. Scardino's tenure it has focused in particular on its education business.
Bertelsmann said it expects the deal to close, subject to antitrust approval, in the second half of 2013.
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