Penguin, Random House May Merge

From Publisher's Weekly:

Responding to persistent media reports, mostly from European outlets, that Pearson and Bertelsmann are discussing a possible merger of Penguin and Random House, Pearson issued the following statement Thursday confirming talks. “Pearson confirms that it is discussing with Bertelsmann 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.”

If a deal does go through, it will unite the two largest trade houses in the U.S., including the two dominant publishers of mass market paperbacks. In 2011, Random House had worldwide revenue of 1.75 billion euros ($2.2 billion at current exchange rates) while Penguin Group had total sales of 1.04 billion pounds ($1.70 billion at current rates). Their combined American operations would have sales of about $1.8 billion, giving Random House Penguin about a 16% share of the trade market based on BookStats industry estimates of trade sales of just under $12.5 billion (excluding religion). With that type of market share, it would be difficult for Amazon, or any other online retailer, to turn off buy buttons if they disagreed over some business decision, one analyst noted. The combination would also have enough financial heft to increase direct-to-consumer efforts beyond the struggling Bookish. Others see this as a move to plug some holes in both companies' worldwide operations, although both publishers have well-established businesses in the major English-language countries.

It was unclear how much cost savings a merger of the two would yield. Although some back-office and other overhead costs could be cut, the merger would do nothing to enhance each other's publishing operations. "There would be tremendous overlap among the imprints," one observer noted, and wondered how the imprints would try to compete with each other for new titles.

Lack of competition was certainly on the minds of agents who see a possible combination as the loss of a deep-pocketed company to bid on titles. As one agent boiled it down: "Fewer publishers to submit to, lower advances." This agent noted that a merger could mean more opportunities for independent publishers to step forward, but added, "It's hard to feel positive about that."

Full article here.