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Merging of Penguin and Random House to take on Amazon.com, Apple

LONDON--Britain's Pearson and Germany's Bertelsmann plan to merge their publishers Penguin and Random House, aiming to gain the upper hand in their relationship with Amazon and Apple, the leaders in the e-book revolution.

Education and media publisher Pearson said on Monday the joint venture — which will bring under one roof fantasy novelist Terry Pratchett, “Fifty Shades of Grey” author EL James and 2012 Nobel Prize winner Mo Yan — would be named Penguin Random House.

Confirmation of a deal came after months of Pearson board discussions and despite an informal approach from Rupert Murdoch's News Corp., which was interested in combining Penguin with its own Harper Collins publishing unit, a person familiar with the situation said.

News Corp. declined to comment.

“The consumer publishing industry is going through a period of tumultuous change, propelled by digital technologies and the giant companies that dominate them,” Pearson Chief Executive Marjorie Scardino said in an email to staff.

“The book publishing industry today is remarkable for being composed of a few large, and a lot of relatively small companies, and there probably isn't room for them all — they're going to have to get together.”

Under the plan, Bertelsmann will own 53 percent of the venture and nominate five directors to the board, while Pearson would own the rest and nominate four. Both must retain their stakes in the venture for at least three years.

Penguin chairman and CEO John Makinson will be chairman of the new venture, and Random House CEO Markus Dohle will be its chief executive.

“We will have more than 250 imprints in this company,” Dohle said in an interview with Reuters. “We want to preserve and give those imprints even better and richer resources.”

The closing of the transaction is scheduled to take place in the second half of 2013, following regulatory approval.

Pearson said the merger would provide significant synergies and the opportunity to spend more on the new technologies transforming the industry.

“Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers,” Scardino said.

The two groups said they would save money on joint warehousing, distribution, printing and central functions. They gave no details but UBS estimated possible savings of 10 percent of their combined cost base.

A joint venture will also allow Pearson to retain a link between its education division and the world-renowned Penguin brand. It also avoids a large tax bill in the United States which would have been incurred had Penguin Books been sold.

“We can see why Pearson has chosen this option, but there may be some disappointment there is no outright sale, and especially with the lock-in of the stake,” Liberum Capital research group said.

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Books from the Penguin publishing company are displayed in a book store in London, Monday, Oct. 29. Britain's Pearson and Germany's Bertelsmann plan to merge their publishers Penguin and Random House, aiming to gain the upper hand in their relationship with Amazon and Apple, the leaders in the e-book revolution.(AP)

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