A statement was released early Friday confirming rumours that publishing companies Penguin and Random House are considering a merger.”Pearson (Penguin is its consumer publishing division) confirms that it is discussing with Bertelsmann (Random House) a possible combination of Penguin and Random House. The two companies have not reached agreement and there is no certainty that the discussions will lead to a transaction. A further announcement will be made if and when appropriate,” reads the statement from Pearson, the British owner of Penguin.
The merger comes as a possible response to the competition publishing companies are facing from e-book providers and retailers like Amazon.
“In an industry that is facing structural problems, the easiest way to get profits are synergies and cost cutting,” said Ian Whittaker, an analyst at Liberum Capital Ltd.
According to Bloomberg, the combined entity would be worth $3 billion and control 25 per cent of the market. This sizable stake could lead to regulatory scrutiny from both the U.S. and Europe.
A company merger could reduce the estimated cost base by two to three per cent, according to media analyst Alex Groote of Panmure Gordon & Co. Groote also suspects Random House will have a bigger stake in the potentially combined company because of its larger revenue.
Penguin, valued around $1 billion, is responsible for publishing New York Times bestseller “The Help,” while Random House, with 2011 revenues of about $1.7 billion, published bestseller “50 Shades of Grey.”
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