Bertelsmann Buys 22% Stake in Penguin Random House From Pearson -- 3rd Update
July 11 2017 - 5:51AM
Dow Jones News
By Zeke Turner
BERLIN--Bertelsmann SE is upping its stake in publisher Penguin
Random House to 75%, giving the German media titan increased
control over one of the top prizes in the book business and betting
hundreds of millions of dollars more on the future of print.
Bertelsmann said Tuesday it was buying a 22% stake in the
business from Pearson PLC for about $780 million. The British
education company will retain a 25% stake in the publisher.
Pearson said it would receive a total $968 million from the sale
and associated dividend payments.
The move comes after years of strategic reorganizing in the
publishing world, with companies worried that the rising popularity
of e-books and online sales would permanently cut into their
revenue. But lately executives have noticed their sales rising on
the back of increased consumer time spent reading across platforms,
knocked on by heightening interest in politics.
Global book publishing revenue is expected to increase 9.7% over
2015, climbing to EUR122.95 billion ($140.10 billion) in 2020,
according to statistics cited by Bertelsmann.
Printed books "will still be around in 100 years," Penguin
Random House Chief Executive Markus Dohle said in a document sent
to Bertelsmann employees and seen by The Wall Street Journal.
Executives at Bertelsmann said that the deal wouldn't affect
Penguin Random House's daily operations, but Bertelsmann's
increased control will give it the right to name a chairman of the
publisher's board of directors.
"The decision-making powers have of course shifted in our
favor," Bertelsmann CEO Thomas Rabe said in an internal document
sent to employees.
According to Mr. Rabe, the deal was an attractive financially
and strategically, boosting Bertelsmann's earnings by more than
EUR60 million and giving it a higher stake in the book business
which has high growth potential in China, India and Brazil.
Under the terms of Bertelsmann and Pearson's joint-venture
agreement, the German company already had control of the CEO job,
to which it appointed Mr. Dohle, a Bertelsmann loyalist who has
been with the company for 23 years and ran Random House before the
merger.
Originally Bertelsmann had just 53% of the Penguin Random House,
the joint venture with headquarters in New York. The increased
stake comes after Bertelsmann this winter announced it was
targeting EUR20 billion in revenue by around 2020, with 30% coming
from the U.S.
The sale is expected to close in September, Pearson and
Bertelsmann said, pending approval from regulators, including at
the European Commission, according to a Bertelsmann spokesman.
Penguin Random House's enterprise value for the deal had been
set at $3.55 billion, according to Bertelsmann, which was advised
by J.P. Morgan in the transaction. In preparation for the deal in
the last weeks, Bertelsmann issued a EUR500 million bond, allowing
the company to deploy existing liquidity in the purchase, according
to the company's spokesman.
Bertelsmann Chief Financial Officers Bernd Hirsch said it had
financed the acquisition at "exceedingly favorable terms."
The 2013 merger of Penguin and Random House joined 250 brands
that publish more than 15,000 titles annually. Mr. Rabe from
Bertelsmann called the publisher "The world's largest and most
international trade book publishing group."
Penguin Random House's stable of writers include Dan Brown, John
Grisham, Ken Follett, George R.R. Martin, John Green and Paula
Hawkins. Earlier this year, the house turned heads by signing a
two-book deal with Barack and Michelle Obama that Bertelsmann
called the highest advance ever paid in the history of book
publishing.
Bertelsmann competes with News Corp, which owns book publisher
HarperCollins, as well as Dow Jones & Co., the publisher of The
Wall Street Journal.
In January Pearson issued an exit notice that its 47% stake
could be up for sale. Pearson was facing falling revenues from its
North American higher-education business and told investors it was
looking to shore up its balance sheet.
Olga Cotaga contributed to this article.
Write to Zeke Turner at Zeke.Turner@wsj.com
(END) Dow Jones Newswires
July 11, 2017 05:36 ET (09:36 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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