Bertelsmann, owner of 53 percent of the New York-based business, plans to buy part or all of the 47 percent held by Pearson Plc (PSON), insiders say, though asking not to be named discussing private deliberations. While Bertelsmann and Pearson aren’t in talks, Pearson is willing to sell and can do so starting October 2015 under a shareholder agreement, the people said.
Penguin Random House, the world’s largest book publisher, could be valued at 2.3 billion euros ($2.9 billion), based on a median multiple of 6.3 times paid for book publishers in the past three years and the target’s 2013 earnings. A buyout would give Bertelsmann -- which has a war chest of several billion dollars according to Chief Executive Officer Thomas Rabe -- more flexibility in running the business as the media house tightens its television, online, and print operations.
Bertelsmann and Pearson created Penguin Random House by pooling their assets in 2012 to gain more clout in negotiating with retail outlets such as Amazon.com Inc. Under that deal, the owners may sell their holdings only after three years, with the partner given the right of first refusal. Should Bertelsmann choose not to buy Pearson’s shares, Pearson has the right to initiate a recapitalization of the venture.
Publishers’ earnings are being squeezed by retailers, such as Amazon. The Seattle-based e-commerce giant is seeking a bigger cut of the retail price of titles so it can continue discounting e-books and boost margins, three people familiar with the matter said in June.
The same month, a German association of booksellers accused Amazon of delaying deliveries of Bonnier AB books to force it to accept lower prices. Earlier this year, a dispute between Hachette Book Group and Amazon prompted the online retailer to block pre-orders for some of the publisher’s forthcoming releases.