Penguin and Random House confident merger will be approved

By Anthony Reuben
Business reporter, BBC News

  • Published
Penguin logo on a book
Image caption,
The headquarters of Penguin Random House will be in New York

Pearson and Bertelsmann, which are merging their publishers Penguin and Random House, are confident of getting the deal cleared by regulators.

Pearson chief financial officer Robin Freestone told BBC News it was a complicated issue but their advice was that the merger would be approved.

But he added that Pearson would sell "bits and pieces" to get it through.

The companies said their brands, or imprints, would retain their editorial independence.

The merger between the two was announced on Monday morning. The new Penguin Random House is set to have between 25% and 30% of the global publishing market.

Bertelsmann chief executive Thomas Rabe said he considered this market share to be "reasonable", and added he was "confident we will get the transaction cleared in the second half of next year".

Imprint independence

Asked whether it was surprising to have such a big deal announced two months before Pearson chief executive Marjorie Scardino was due to stand down, Mr Freestone said: "We didn't want to be hampered by the handover."

He added that John Fallon, who will take over as chief executive on 1 January, "thinks it's a good idea".

Both companies have declined to put figures to the amount of money they will save from the merger.

Mr Rabe said "the imprints will continue to operate independently", but that "there are economies of scale in back-office functions".

Imprints are the names for the brands under which publishers release their books.

Random House recently became the UK's biggest publisher thanks to the success of the Fifty Shades series, while Penguin has high hopes of strong Christmas sales for Jamie Oliver's latest cookery book.

But if you look on the spines, you will see neither Random House's logo nor a Penguin.

Fifty Shades is published by a Random House imprint called Arrow. Jamie Oliver's publisher is a Penguin imprint called Michael Joseph.

Maintaining the independence of the imprints is considered important because they tend to specialise in different areas and are supposed to have distinctive styles.

Mr Freestone said that while they were trying to keep all the imprints going, "The consumer has no real affinity with imprints - they buy books because of the author."

"There's an awful lot of costs not specific to editorial," Mr Freestone said, citing accounting and human resources as examples.

'Good weight'

The headquarters of Penguin Random House will be in New York, although it will retain its presence in London, where Penguin is currently based.

Mr Freestone added that being part of a bigger group would be a good thing, especially in the e-book market.

"In that marketplace it is important to have a good weight. There is a danger if you're small that retailers will demand greater and greater discounts.

Bertelsmann's Mr Rabe said: "Amazon is a customer of both and will continue to be."

"I don't expect this transaction to change that relationship."

Responding to criticism from authors that publishers have never stood up to retailers even when they were much smaller, Mr Freestone said: "Is it [being a bigger company] a perfect defence? No. It can be quite tough anyway."

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