Bertelsmann Looks to Seize Moment as Big Publishing Stake Hits Market
January 18 2017 - 9:40AM
Dow Jones News
By Zeke Turner
BERLIN--Bertelsmann SE & Co., long eager for full ownership
of book publisher Penguin Random House to boost its U.S. exposure,
finally has its chance.
The German media giant on Wednesday said it was negotiating to
buy the 47% of Penguin Random House that it doesn't own from
Pearson PLC, which faces collapsing revenue at its U.S.
educational-publishing business. Bertelsmann has the right of first
refusal for Pearson's share, according to their 2012 joint-venture
agreement.
The stake is the biggest prize that has come to market in recent
years in the global book-publishing industry and positions
Bertelsmann to consolidate its power in the huge U.S. market.
The merger of Penguin and Random House dwarfed years of
deal-making in the publishing business, creating the
English-speaking world's top consumer bookseller, with annual
revenue of EUR3.7 billion ($3.95 billion) and sales of 800 million
books, e-books and audio books, according to Bertelsmann.
Deal-making since then has largely consisted of established
players buying smaller imprints to augment their portfolios, part
of publishing groups' effort to increase their size and better
compete against giant media conglomerates.
Collaborations have also reached across industry lines to
digital-first players like Amazon.com Inc., following a reduction
in conflicts between online booksellers and publishing
companies.
HarperCollins, a unit of News Corp, in 2015 struck a pact with
Amazon over prices and revenue-sharing. The move followed similar
pacts with the online retailer by CBS Corp.'s Simon & Schuster,
Lagardère SCA's Hachette Book Group from France and the German
Verlagsgruppe Georg von Holtzbrinck GmbH's Macmillan book
publisher.
News Corp, which also owns The Wall Street Journal, in 2014
bought romance publisher Harlequin for $415 million to bolster its
publishing group.
That same year, Hachette bought Black Dog & Levanthal, a
nonfiction publisher. Last year the French publisher expanded its
nonfiction business, by acquiring the publishing arm of Perseus
Books Group, which included nine imprints.
None of those deals created the scale of the partnership between
Pearson and Bertelsmann, which joined 250 brands that publish
roughly 15,000 titles annually.
Bertelsmann voiced interest in increasing its stake from the
partnership's inception. The German company jostled for a majority
share and the right to pick the chief executive of the combined
publishing house. Markus Dohle, a member of Bertelsmann's executive
board, has served as CEO of Penguin Random House.
The partnership has benefited from successful movie tie-in books
such as "The Girl on the Train" by Paula Hawkins and best-selling
new work by authors including Colson Whitehead and John Le Carré.
Penguin Random House also publishes titles of John Grisham, Ken
Follett and George R.R. Martin.
Under the terms of the partnership, Pearson had the option to
leave the joint venture any time after Jan. 1, 2017. It exercised
this right in a call with investors on Wednesday morning.
"The ball is very much in Bertelsmann's court," Pearson Chief
Financial Officer Coram Williams told reporters. He said Pearson
would seek to recapitalize its stake and extract a dividend if
there is no deal.
Mr. Williams said that there was no "set price" for Pearson's
stake, pointing to pricing terms in the joint-venture contract. A
Pearson spokesman said the next step would be negotiations "that
could last several months."
Bertelsmann CEO Thomas Rabe said that the deal would only happen
"provided the financial terms are fair." A spokesman for
Bertelsmann declined to comment on the value of Pearson's
share.
Mr. Rabe said in an internal document sent to employees and seen
by The Wall Street Journal that he expected a deal.
"New York will remain the headquarters of our global book
business," he said. "The United States is the world's largest, most
important and most innovative media market by far."
Ulrike Dauer in Frankfurt and Simon Zekaria in London
contributed to this article.
(END) Dow Jones Newswires
January 18, 2017 09:25 ET (14:25 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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