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MUMBAI:
Britian's Pearson and Germany's Bertelsmann, two world's leading
publishers, have collaborated to create the world's leading
consumer publishing organisation by combining Penguin and
Random House. The collaboration comes at a time when the publishing
industry is facing stiff competition from e-book publishers
like Amazon and Apple.
Under
the terms of the agreement, Penguin and Random House will
combine their businesses in a newly-created joint venture
named Penguin Random House. Bertelsmann will own 53 per cent
of the joint venture and Pearson will own 47 per cent. The
joint venture will exclude Bertelsmann's trade publishing
business in Germany and Pearson will retain rights to use
the Penguin brand in education markets worldwide.
The
agreement comes in the wake of Rupert Murdoch's News Corp
showing interest in acquiring Pearson which together with
Harper Collins publishing unit would have helped the media
conglomerate in expanding its publishing business.
Bertelsmann
will nominate five directors to the Board of Penguin Random
House and Pearson will nominate four. John Makinson, currently
chairman and chief executive of Penguin, will be chairman
of Penguin Random House and Markus Dohle, currently chief
executive of Random House, will be its chief executive.
In
reviewing the long-term trends and considerable change affecting
the consumer publishing industry, Pearson and Bertelsmann
both concluded that the publishing and commercial success
of Penguin and Random House can best be sustained and enhanced
through a partnership with another major international publishing
house.
They
believe that the combined organisation will have a stronger
platform and greater resources to invest in rich content,
new digital publishing models and high-growth emerging markets.
The organisation will generate synergies from shared resources
such as warehousing, distribution, printing and central functions.
Pearson
and Bertelsmann intend that the combined organisation's level
of organic investment in authors and new product models will
exceed the total investment of Penguin and Random House as
independent publishing houses.
The
two companies believe that the combination will create a highly
successful new organisation, both creatively and commercially,
with the breadth and investment capacity to deliver significant
benefits. Readers will have access to a wider and more diverse
range of frontlist and backlist content in multiple print
and digital formats. Authors will gain a greater depth and
breadth of service, from traditional frontlist publishing
to innovative self-publishing, on a global basis.
Employees
of the new organisation will be part of the world's first
truly global consumer publishing company, committed to sustained
editorial excellence and long-term investment in a rich diversity
of content. And shareholders will benefit from participating
in the consolidation of the consumer publishing industry without
having to deploy additional capital.
The
combination is subject to customary regulatory and other approvals,
including merger control clearances, and is expected to complete
in the second half of 2013.
In
2011, Random House reported revenues of €1.7 billion
(£1.48 bn) and operating profit of €185 million
(£161m). Penguin reported revenues of £1.0 billion
and operating profit of £111 million with total assets
of £1.0 billion. After completion, Pearson will report
its 47 per cent share of profit after tax from the joint venture
as an associate in its consolidated income statement.
Under
the terms of the agreement, neither Pearson nor Bertelsmann
may sell any part of their shareholding in Penguin Random
House for three years. To protect Pearson's interests as a
minority shareholder, if Bertelsmann declines a Pearson offer
to sell its entire shareholding, Pearson may require a recapitalisation
by which Penguin Random House raises debt of up to 3.5x EBITDA,
with a dividend distributed to shareholders in line with their
ownership. In addition, from five years after completion,
either partner may require an IPO of Penguin Random House.
Pengion
Chairman and CEO John Makinson said, "All of us who work
in book publishing experience every day the breathtaking pace
of change in our industry. The partnership that we are announcing
today will position Penguin Random House at the forefront
of that change. Our access to investment resources will allow
us to take risks with new authors, to defend our creative
and editorial independence, to publish the broadest range
of books on the planet, and to do it all with the attention
to quality that has always characterised both our great companies."
Random
House Chairman & CEO Markus Dohle added, "Our new
company will bring together the publishing expertise, experience,
and skill sets of two of the world's most successful, enduring
trade book publishers. In doing so, we will create a publishing
home that gives employees, authors, agents, and booksellers
access to unprecedented resources. I deeply believe that the
support and services that we will be able to offer, coupled
with the creative and editorial independence that we will
continue to maintain, will benefit everyone in the book publishing
environment, especially our passionate readers from today's
generation to the next."
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