Bertelsmann Buys 22% Stake in Penguin Random House From Pearson -- 3rd Update

By Zeke Turner Features Dow Jones Newswires

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.

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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.

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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)