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Saturday, October 27, 2012

Random House/Penguin merger overview

As the whole publishing world knows, Bertelsmann (Random House) and Pearson (Penguin) are engaged in talks about a merger.

A scan through the internet (with particular attention to the Guardian, The Bookseller, and the Financial Times), elicited the following interesting points:

The tie-up would result in Bertelsmann having a stake of more than 50%, which could stymie the deal.

And there are other possible hitches, it seems. Pearson, which owns the Financial Times, confirms that talks are in progress, but warns that several issues remain unresolved.

Bertelsmann's seniors are in China (!?) and have declined to comment. However, a source at Random House said that the outcome was "promising."

The talks have followed the announcement of Pearson's chief executive, Dame Marjorie Scardino, that she intended to stand down after 15 years at the helm.  She has previously gone on record as saying that the Financial Times would be sold "over my dead body."

If the merger happens, the cash inflow could mean that the FT is less likely to be sold.  However, Pearson's new CEO, John Fallon (who lacks a publishing background), is in favor of selling not just the FT, but Penguin, too. His vision is to make Pearson a leader in the education sector.

The regulators, obviously, would be interested in a merger of such major players. However, Lorna Tilbian, head media analyst at Numis, pointed out that the music industry was pared down to just three big players without any fuss.

If the merger is successful, no one at the very top will suffer -- Markus Dohle, CEO of Random house, and John Makinson, CEO of Penguin, are both expected to keep senior executive jobs. Obviously, this reprieve would not apply to the general rank and file.

And the reasoning behind it all? Fear of the dominance of, whose market share in the UK is reaching for 40%, and getting there fast. As The Bookseller points out, Amazon's only real competitors, right now, are Apple and Google. Creating the publishing giant that would result from the merger is a response to the need for "greater muscle."

Authors and agents should be biting their nails.  Not only does it cut down the number of prospective publishers, but it takes out two competitors.  It also calls the future of other publishers, who will be suddenly downsized, into question.

Is this "the first hint of what the future shape of publishing will be," as The Bookseller predicts? We can only wait and see.  In my own personal opinion, it is a desperate attempt at catch-up with what is already happening.

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