Penguin Random House: An American takeover

As it gets taken over, Penguin is quitting the UK for the US, while talismanic publisher Gail Rebuck takes a back seat. But can the combine keep its top authors?

Markus Dohle, chief executive of the new book publishing giant Penguin Random House, did not stint on the superlatives when he wrote to staff yesterday to announce the merger of the two august firms. "As we begin this new chapter in our history, I am in the truly privileged position of being able to announce a team of such depth and breadth of experience, underpinned by passion for our industry, our authors, and the books we publish," gushed Mr Dohle as he announced a new board of directors.

His message was intended to reassure staff that the merger between Random House, part of the German media giant Bertelsmann, and Penguin, owned by the British education giant Pearson, will be amicable and fair.

Bertelsmann has five seats on the board and Pearson has four, reflecting their respective shareholdings of 53 per cent and 47 per cent. John Makinson, previously chief executive of Penguin, has been named chairman, alongside Mr Dohle.

The enlarged company publishes 15,000 titles and had £2.6bn of worldwide sales last year, generating operating profit of £346m. The merger brings together authors such as Zadie Smith, Will Self and Jamie Oliver from Penguin and Dan Brown, Nicholson Baker and Fifty Shades of Grey writer EL James from Random House.

However, mergers are rarely painless. Not everyone can keep their jobs, even though Penguin Random House insists that cuts among its 10,000 staff are not on the agenda.

One notable change to emerge yesterday is that Random House's long-serving UK boss, Dame Gail Rebuck, will be stepping back from the day-to-day running of the company. Tom Weldon, UK chief executive of Penguin, steps up to become chief executive of the enlarged UK group.

Dame Gail, one of the most respected figures in British publishing, will still have a seat on the board of Penguin Random House as UK chairman, and will continue to sit on Bertelsmann's group management committee.

The company is at pains to stress she will still oversee the UK business and "continue to work closely with the many authors she has supported throughout their careers, as well as attracting new talent". Reassuring writers is particularly important as Penguin Random House will want to avoid defections by big-name authors.

In another symbolic change, Penguin's headquarters will no longer be in Britain, cutting a link that goes back to the creation of the celebrated paperback imprint by Allen Lane in 1935. The whole group will now be based in New York, which was already the home of Random House.

Those close to the company point out that Penguin already has a major presence in America and Mr Makinson has been spending much of his time there in the last year, so insiders maintain it won't make a big difference. Even so, the impression is that Random House and Mr Dohle are in the driving seat in this merger – witness the move by David Shanks to step down as Penguin's US chief executive. He will serve as a "senior executive adviser".

The logic of the tie-up is clear. Print publishing is undergoing structural change because of the rise of e-books and the online behemoth Amazon. In this context, it makes sense for publishers to merge. Penguin Random House will have a 25 per cent market share, so little wonder that regulators in America, New Zealand, Australia, Europe, Canada, South Africa, and China were all happy to wave it through, after the merger was first agreed in October 2012.

It would seem likely that Mr Dohle will wield the axe to improve margins although the company insists the new combined management team wants to take its time to get to know the business. The London arm plans to keep Random House's two main offices in Vauxhall Bridge Road and Ealing and Penguin's base on The Strand. However, the Strand building is on a long lease whereas the company is understood to own the freehold on Vauxhall Bridge Road, which suggests the rented building will be vacated before long.

The next chapter for the books industry is more likely to be a tense thriller than a cheery fairytale.

The history of Penguin and Random House

Penguin

1935: Bodley Head director Allen Lane came up with the idea of an imprint of good-quality paperbacks – a revolutionary idea at a time when most paperbacks were trashy and poorly printed. His secretary came up with the name "Penguin" and another employee sketched out the logo at London Zoo.

1936: Within a year it had sold 3 million paperbacks with authors ranging from Agatha Christie to Ernest Hemingway. Then Lane split it off as a separate company in premises in the crypt of Holy Trinity church on Marylebone Road in London.

1939: Ian Ballantine sets up first US office.

1940: Puffin, a series of non-fiction picture books for children, is launched.

1960: Penguin wins case brought against it under the Obscene Publications Act for publishing Lady Chatterley's Lover.

1961: Became a public company with the share offer a record 150 times oversubscribed.

1970: Lane dies following several years of tough financial times for Penguin. Taken over by Pearson.

Random House

1927: Founded by the Americans Bennett Cerf and Donald Klopfer, two years after they acquired the Modern Library imprint.

1934: Published James Joyce's Ulysses and beat obscenity case.

1987: Buys CVBC, a conglomerate of the imprints Chatto, Virago, Bodley Head and Jonathan Cape.

1991: Gail Rebuck appointed head of Random House UK.

1998 Company bought by Bertelsmann.