Penguin Random House 'will take risks'

Penguin Random House will be the world's first truly global publishing company, able to take risks and likely to make cost savings primarily in its back office function, leaders of the two companies have said. Discussions over the merger have been underway for five months, it has been confirmed.

Penguin c.e.o. and chairman John Makinson told The Bookseller the merger will make the combined business “indispensable” to its industry and to consumers. Makinson, who will become chairman of Penguin Random House, said the new organisation would have the resources, "in terms of finance and talent, to be completely competitive in a fast-moving industry".

He said: "We will be able when we complete this merger to really face the future with confidence. We will have all the resources we need to serve the readers as best we can. We will have the resources and confidence to be a bit bolder and think about new ideas, new strategies and new platforms. One of the things scale gives us is the opportunity to take risks, and we will certainly be doing that.”

Meanwhile Bertelsmann c.e.o. Thomas Rabe called the Random House/Penguin merger a "a great day in the company's history and for the publishing industry”, saying Penguin Random House will be “the world's first truly global publishing company". Rabe said the two companies were well aligned with "complementary portfolios", and combining them will mean the companies will be "more efficient" and with "extra diversity of opportunity for readers and authors" as well as a strengthening of the global reach and relevance of the publisher's content.

Rabe said he considered the combined companies' expected market share of a little over 25% to be "reasonable", and said: "We will work closely with the regulatory authorities and we are confident that we will get it cleared in the second half of 2013." 

Discussions between the companies have been taking place for around five months, Makinson confirmed. The Penguin chief said: “The early conversations were between [Random House chief executive] Markus Dohle and [outgoing Pearson c.e.o.] Marjorie Scardino, and they moved along pretty rapidly. Once they had agreed a framework I got more involved in fleshing out the details." He added of Scardino that the merger “has her signature. She has been a huge supporter of Penguin, and I know she wants to ensure that when she leaves, she leaves it in the best possible shape.”

Makinson said that Pearson had considered all options for the business, including buying other businesses and a sale to other companies. However, he said there had never been discussions about Penguin being sold outright to Bertelsmann. “The talks from the start have been about joining them together,” Makinson said. Rabe confirmed that he had only ever discussed a "non-cash combination" with Pearson. 

Rabe said that cost savings would primarily come from looking at "back office function". He said: "Clearly there are economies of scale in the back office operations which will be confirmed once the regulatory commissions have agreed to the merger." Makinson said that decisions were still being made about management structure, as well as any job losses that may arise from merging departments. But he said: “Authors shouldn’t expect to see big changes at all, the same imprints will remain in place with the same editors.” 

The chief executives of the merged company will be based in New York, but Makinson said the decentralised management of the companies would not mean all decisions are taken there. There are also no plans for the companies to move buildings. 

Regarding Penguin’s current battle with the US Department of Justice over its use of the agency model, which Random House has already settled, Makinson said Penguin would fight on although he also said the publisher would have “a more complicated relationship with the Department of Justice" as a result of the merger announcement.  He confirmed: “On the agency issue, we have done nothing wrong, and we are standing by that.”