Days after confirming they were in discussions (see this article), Pearson and Bertelsmann have announced that they are indeed merging their book publishing units.

Key features of the announcement:

* the two companies will merge, while allowing “the publishing imprints of Random House and Penguin will continue to publish their books with the autonomy they presently enjoy, and retain their distinct editorial identities,” sometime late next year. The new company will be called Penguin Random House.

* Random House owner Bertelsmann will own 53% of the combined group; Penguin owner Pearson will own 47%.

* Random House CEO Markus Dohle will be CEO of the combine; Penguin CEO John Makinson will be Chairman of the Board of Directors.

* Neither Pearson nor Bertelsmann may sell any of their stake in the combined company for three years.

* Either partner company may require an IPO of the combination starting five years after the merger.

Here is Bertelsmann’s press release (Pearson’s is below):

The international media groups Bertelsmann and Pearson announced today that they will combine the activities of their respective trade-book publishing companies, Random House and Penguin Group. Bertelsmann will own 53 percent, Pearson 47 percent. The closing of the transaction is scheduled to take place in the second half of 2013, following regulatory approval.

The announcement of the combination was made today [October 29] in Gütersloh, Germany by Thomas Rabe, Chairman and CEO of Bertelsmann, and in London by Marjorie Scardino, Chief Executive of Pearson.

Upon closing, Markus Dohle, Chairman and Chief Executive Officer of Random House worldwide, will be CEO of the new group. John Makinson, Chairman and CEO of Penguin, will become Chairman of the Board of Directors. Additional senior executive appointments will be announced in due course. Bertelsmann will appoint five representatives to the group’s Board of Directors, Pearson four. The new name will be Penguin Random House. Until the closing, the companies will maintain their current separate operations and continue conducting business independently.

The new publishing group will include all the publishing divisions and imprints of Random House and Penguin in the United States, Canada, the United Kingdom, Australia, New Zealand, India, South Africa, as well as Penguin’s publishing company in China, and Random House’s Spanish-language publishing operations in Spain and Latin America. Random House’s Munich-based German-language publishing company, Verlagsgruppe Random House, will not be part of the Group and will remain at Bertelsmann. In the new company, the publishing imprints of Random House and Penguin will continue to publish their books with the autonomy they presently enjoy, and retain their distinct editorial identities.

Bertelsmann Chairman & CEO Thomas Rabe says: “With this planned combination, Bertelsmann and Pearson create the best course for the future of our world-renowned trade-book publishers, Random House and Penguin, by enabling them to publish even more effectively across traditional and emerging formats and distribution channels. It will build on our publishing tradition, offering an extraordinary diversity of publishing opportunities for authors, agents, booksellers, and readers, together with unequalled support and resources.”

Mr. Rabe also observed, “Today’s announcement is a milestone not only for Random House, but also for the entire Bertelsmann group, with its 177-year publishing history. Its significance for our business and for the cultural resonance of our book publishing operations worldwide is on a par with such momentous agreements as the takeover of Goldmann Verlag in 1977; the acquisition of a stake in Bantam Books, our first-ever U.S. investment, that same year; the purchase of Doubleday in 1986; and especially that of Random House in 1998. Each of these steps was aimed at increasing the breadth and quality of Bertelsmann’s publishing operations, as our new company will.”

For Bertelsmann, the planned combination also marks a significant step in the implementation of its four new strategic priorities under Thomas Rabe, which it recently adopted and announced: strengthening the core, digital transformation, the establishment of growth platforms, and the development of growth regions. The Chairman & CEO comments: “The combination of Random House and Penguin, first of all, significantly strengthens book publishing, one of our core businesses. Second, it advances the digital transformation on an even greater scale, and third, it increases our presence in the target growth markets Brazil, India and China.”

Marjorie Scardino, chief executive of Pearson, said: “Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House – a company with an almost perfect match of Penguin’s culture, standards and commitment to publishing excellence – will greatly enhance its fortunes and its opportunities. Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers.”

Markus Dohle, Chairman & CEO of Random House, adds: “Our new company will bring together the publishing expertise, experience, and skill sets of two of the world’s most successful, enduring trade book publishers. In doing so, we will create a publishing home that gives employees, authors, agents, and booksellers access to unprecedented resources. I deeply believe that the support and services that we will be able to offer, coupled with the creative and editorial independence that we will continue to maintain, will benefit everyone in the book publishing environment, especially our passionate readers from today’s generation to the next.”

Pearson’s press release is:

Parson and Bertelsmann today announce an agreement to create the world’s leading consumer publishing organisation by combining Penguin and Random House.

The combination brings together two of the world’s leading English language publishers, with highly complementary skills and strengths. Random House is the leading English language publisher in the US and the UK, while Penguin is the world’s most famous publishing brand and has a strong presence in fast-growing developing markets. Both companies have a long history of publishing excellence, and both have been pioneers in the dramatic industry transformation towards digital publishing and bookselling.

Under the terms of the agreement, Penguin and Random House will combine their businesses in a newly-created joint venture named Penguin Random House. Bertelsmann will own 53% of the joint venture and Pearson will own 47%. The joint venture will exclude Bertelsmann’s trade publishing business in Germany and Pearson will retain rights to use the Penguin brand in education markets worldwide.

Bertelsmann will nominate five directors to the Board of Penguin Random House and Pearson will nominate four. John Makinson, currently chairman and chief executive of Penguin, will be chairman of Penguin Random House and Markus Dohle, currently chief executive of Random House, will be its chief executive.

In reviewing the long-term trends and considerable change affecting the consumer publishing industry, Pearson and Bertelsmann both concluded that the publishing and commercial success of Penguin and Random House can best be sustained and enhanced through a partnership with another major international publishing house. They believe that the combined organisation will have a stronger platform and greater resources to invest in rich content, new digital publishing models and high-growth emerging markets. The organisation will generate synergies from shared resources such as warehousing, distribution, printing and central functions. Pearson and Bertelsmann intend that the combined organisation’s level of organic investment in authors and new product models will exceed the total investment of Penguin and Random House as independent publishing houses.

The two companies believe that the combination will create a highly successful new organisation, both creatively and commercially, with the breadth and investment capacity to deliver significant benefits. Readers will have access to a wider and more diverse range of frontlist and backlist content in multiple print and digital formats. Authors will gain a greater depth and breadth of service, from traditional frontlist publishing to innovative self-publishing, on a global basis. Employees of the new organisation will be part of the world’s first truly global consumer publishing company, committed to sustained editorial excellence and long-term investment in a rich diversity of content. And shareholders will benefit from participating in the consolidation of the consumer publishing industry without having to deploy additional capital.

The combination is subject to customary regulatory and other approvals, including merger control clearances, and is expected to complete in the second half of 2013.

In 2011, Random House reported revenues of €1.7bn (£1.48bn) and operating profit of €185m (£161m). Penguin reported revenues of £1.0bn and operating profit of £111m with total assets of £1.0bn. After completion, Pearson will report its 47% share of profit after tax from the joint venture as an associate in its consolidated income statement.

Under the terms of the agreement, neither Pearson nor Bertelsmann may sell any part of their shareholding in Penguin Random House for three years. To protect Pearson’s interests as a minority shareholder, if Bertelsmann declines a Pearson offer to sell its entire shareholding, Pearson may require a recapitalisation by which Penguin Random House raises debt of up to 3.5x EBITDA, with a dividend distributed to shareholders in line with their ownership. In addition, from five years after completion, either partner may require an IPO of Penguin Random House.

Marjorie Scardino, chief executive of Pearson, said: “Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House – a company with an almost perfect match of Penguin’s culture, standards and commitment to publishing excellence – will greatly enhance its fortunes and its opportunities. Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers.“

Thomas Rabe, chairman and CEO of Bertelsmann, said: “With this planned combination, Bertelsmann and Pearson create the best course for new growth for our world-renowned trade-book publishers, to enable them to publish even more effectively across traditional and emerging formats and distribution channels. It will build on our publishing tradition, offering an extraordinary diversity of publishing opportunities for authors, agents, booksellers, and readers, together with unequalled support and resources.”