Strategy: The Big Merge

The email arrived in the middle of the night.

At 3:22 a.m. on the morning of Oct. 29, as the East Coast was battening down the hatches in preparation for Superstorm Sandy, Stuart Applebaum, executive VP of communications at Random House, Inc., delivered the news in the form of a press release and a letter from Markus Dohle, chairman and CEO of Random House.

"Bertelsmann and Pearson to Combine Book Businesses," trumpeted the press release.
"Today we begin an exciting new chapter for our company," began Dohle's letter. "Bertelsmann has just concluded negotiations with Pearson, the parent company of the Penguin Book Group, to form a future new partnership …"

The news itself was certainly no surprise. That Penguin and Random House were talking merger had been the buzz of the rumor mill for the few weeks prior and, an 11th hour bid by Rupert Murdoch's HarperCollins notwithstanding, had become all but fait accompli in the days prior. According to those in the know, the publishing powerhouses had been in discussions for some time. That the official word arrived as America's publishing capital was about to be pummeled by an atmospheric event so unprecedented meteorologists needed new nomenclature, though, made it all seem a little more heavy.

The Big Six would be no more. And suddenly Random Penguin—heretofore a fanciful, zen-like amalgamation of syllables—was a thing. Not yet a reality, because these things take time, but an agreement. An agreement announced in an email on a dark and rainy night.

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Of course, between now and when the transaction is closed (likely late 2013 pending regulatory approval), official news about the Random House Penguin venture is expected to be scarce. And yet questions abound. Why did two of the biggest players in book publishing throw in their lot together? Will further contraction occur in its wake? Will this give the new entity more leverage in its negotiations with mighty Amazon? And if so, will it be enough to matter?