News Corp. Said to Prepare Bid for Pearson’s Penguin Unit

Rupert Murdoch’s News Corp. has expressed interest in acquiring Pearson Plc’s Penguin unit, threatening plans for a combination of the U.K. publisher with Bertelsmann SE’s Random House division, according to a person familiar with the matter.

News Corp., which owns the HarperCollins publishing house, is preparing an offer for Penguin, said the person, who asked not to be identified because the discussions are private. Penguin is valued at 1 billion pounds ($1.6 billion) by News Corp., the Sunday Times reported yesterday, without citing anyone. The newspaper is owned by New York-based News Corp.

A bid for Penguin would disrupt negotiations between London-based Pearson to combine the 77-year-old publisher of “The Help” and “Diary of a Wimpy Kid’ series with Bertelsmann’s Random House. News Corp. is working to bulk up its publishing arm ahead of a planned split of its entertainment businesses from print units.

Miranda Higham, a spokeswoman for News Corp., Pearson’s Charles Goldsmith and Bertelsmann’s Stephan Knuettel declined to comment on News Corp.’s interest in Penguin.

Book publishers are pushing for consolidation in the industry to lower costs and to gain more sway over sales as big buyers such as Inc. drive down prices and as electronic books become more popular. Random House and Penguin together had revenue of about 3 billion euros ($3.9 billion), based on 2011 annual reports.

Digital Expansion

HarperCollins has annual revenue of more than $1 billion and its U.K. unit publishes about 1,000 books a year. News Corp.’s entire publishing unit, which includes the Wall Street Journal and Dow Jones, reported revenue of $4.05 billion for the six months through June.

Penguin reported a 3.5 percent revenue decline to 441 million pounds in the first half of 2012. Profit fell to 22 million pounds from 42 million pounds a year ago even as the publisher’s books won two Pulitzer prizes and made the New York Times bestseller’s list 132 times.

Bertelsmann CEO Thomas Rabe, who took over in January, is looking for acquisitions to reduce the Guetersloh, Germany-based media company’s dependence on Europe and expand its digital businesses. Pearson is seeking to boost its education unit and has selected that division’s chief, John Fallon, to succeed CEO Marjorie Scardino, who will step down by the end of the year.

News Corp. announced plans in June to split its publishing and entertainment businesses as Chief Executive Officer Rupert Murdoch grapples with a phone hacking and bribery scandal at his U.K. newspapers that scuppered a 7.8 billion-pound bid for 61 percent of British Sky Broadcasting Group Plc.

Pearson rose 0.7 percent to 1,221 pence on Oct. 26 in London, a day after the company said it was in talks with Bertelsmann about merging their publishing assets. The U.K. company has a market value of 10 billion pounds. News Corp. slipped 1.3 percent to $23.79 in New York on Oct. 26.

Bertelsmann is closely held by the Mohn family, descendants of Carl Bertelsmann, who founded the company in 1835.

(Corrects revenue figure in fifth paragraph.)
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