Bertelsmann Buys 22% Stake in Penguin Random House From Pearson -- 4th Update
July 11 2017 - 7:36AM
Dow Jones News
By Zeke Turner
BERLIN--Bertelsmann SE is raising its stake in publisher Penguin
Random House to 75%, tightening the German media company's control
over one of the top prizes in the book business in a
multimillion-dollar bet 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
margins. But lately executives have noticed overall book sales
rising as consumer spend more time reading, partly thanks to
heightened 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.
Electronic book sales last year made up 20% of Penguin Random
Houses's total sales, according to an analysis by book industry
expert Rüdiger Wischenbart for the Frankfurt Book Fair.
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 the chairman of
the publisher's board.
"The decision-making powers have of course shifted in our
favor," Bertelsmann CEO Thomas Rabe said in an internal document
sent to employees.
Increased control of Penguin Random House makes sense
financially and strategically, with the deal set to boost
Bertelsmann's earnings by more than EUR60 million while enhancing
the prospects of its books business in China, India and Brazil, Mr.
Rabe said.
Under the terms of Bertelsmann and Pearson's existing New
York-based joint venture, the German company had the right to
appoint the CEO, a position currently filled by 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 Penguin Random House. 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.
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 Chase & Co. In preparation for the deal in the
last weeks, Bertelsmann issued a EUR500 million bond, according to
the company's spokesman.
Bertelsmann Chief Financial Officers Bernd Hirsch said the
company had financed the acquisition at "exceedingly favorable
terms."
As part of the deal, Pearson can't make further changes to its
slimmed-down minority stake until March 2019. Pearson CFO Coram
Williams said the company won't keep its stake in the joint venture
forever. After the 2019 date, "we are free to do what we like," Mr.
Williams said.
The 2013 merger of Penguin and Random House joined 250 brands
that publish more than 15,000 titles a year.
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 faced falling revenues from its North
American higher-education business and told investors it was
looking to shore up its balance sheet.
The stake sale has provided Pearson with around GBP300 million
($387 million) of extra capital that will be used for a share buy
back, said Mr. Williams, Pearson's CFO.
The transaction is expected to close in September pending
regulatory approval in the EU and other jurisdictions, the
companies said.
Olga Cotaga and Nina Trentmann in London contributed to this
article.
Write to Zeke Turner at Zeke.Turner@wsj.com
(END) Dow Jones Newswires
July 11, 2017 08:21 ET (12:21 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Pearson (LSE:PSON)
Historical Stock Chart
From Apr 2024 to May 2024
Pearson (LSE:PSON)
Historical Stock Chart
From May 2023 to May 2024