Bertelsmann AG and Pearson plc (NYSE: PSO) are combining  their book publishing companies, Random House and Penguin Group, to create the world’s largest consumer book publishing company. The merger, to be called Penguin Random House, will be based in New York, with annual revenues of about $3.8 billion.The move is designed to combat the growth of e-books and compete with Internet retailers including Amazon.com Inc. (Nasdaq: AMZN). Bertelsmann chief executive Thomas Rabe told The New York Times that the merger will allow the combined company to invest more in digital operations and emerging markets, where book sales are growing faster than in developed markets, such as the U.S. and Western Europe.
Financial terms of the deal weren’t disclosed, but sources peg the deal value in a wide range, somewhere between $2 billion and $3 billion. Rupert Murdoch's News Corp. (Nasdaq: NWSA) had reportedly bid $1.6 billion for Penguin.No cash is exchanging hands in the transaction. Gutersloh, Germany-based Bertelsmann will own 53 percent, and London-based Pearson will own 47 percent of Penguin Random House. The deal is expected to close in the second half of 2013, if it receives regulatory approval. Random House’s Markus Dohle will serve as chief executive, and Penguin’s John Makinson will be chairman. Close regulatory scrutiny is expected. The European Commission is particularly concerned about deals that result in the loss of what it calls “cultural diversity.”Random House’s Verlagsgruppe, a publishing company, will remain under Bertelsmann and will not be included in the joint venture. Pearson will retain the rights to the Penguin brand in education markets.Partners Benjamin Willis and Charles Engros of Morgan Lewis and Bockius LLP acted as Pearson’s legal adviser on the deal.  

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