Penguin Books and Random House to merge

50 Shades of Grey meets Hairy McClairy from Donaldon's Dairy.

Reuters Business Report - The Random House sensation and Penguin Classic may not share much in common, but a merger plan agreed by Britain's Pearson and Germany's Bertelsmann would join their publishers together.

Reuters Breaking Views Columnist Quentin Webb says the planned tie up reflects how dramatically technology is transforming the bookselling business.

Quentin Webb, Breaking Views Columnist said"Despite the fact that the industry is moving quite quickly to ebooks - both of these companies make about 20 percent of their sales in ebooks now - there's still a lot of costs tied up in the old dead tree model of printing and distributing books and storing them in warehouses. So if you take two businesses of size and put them together you get extra economies of scale which can be worth a lot to shareholders."

The newly created joint venture will be named Penguin Random House, withBertelsmann owning 53 percent and Pearson the rest.

News of the merger - which is subject to regulatory approval - comes a day after Rupert Murdoch's Sunday Times reported that News Corp could bid for Penguin.

Quentin Webb, Breaking Views Columnist said

"It would make sense for News Corp to have a look at this as well. Rupert Murdoch is in the process of spinning out his newspaper and publishing business which includes Harper Collins at the moment. That's the only bit of his publishing business which is set to grow in terms of revenues and profitability in the next few years. So if he could bolster that by putting Harper Collins and Penguin together he'd have a much stronger business but I think for the Pearson team, they had already gone down the road in terms of this deal and they're probably they can get more in the long run by participating in this joint venture than by selling out in a quick cash price now."

While Random House is strong in Britain and the United States, Penguin is the world's most famous publishing brand, with a strong presence in fast-growing developing markets.

Regulatory hurdles could be an issue for the tie-up, but with a joint market share of around 25 percent in the United States and Britain, the deal is expected to go through.

Matt Cowan Reuters