Rupert Murdoch’s News Corporation, the parent company of HarperCollins, is exploring a cash bid for Pearson PLC’s Penguin book division, a step that could ignite a bidding war for Penguin as the publishing industry begins to move toward consolidation.
News Corporation’s interest in Penguin, confirmed by a person briefed on the talks, came shortly after Pearson said it was exploring a deal with Random House’s parent company, the German media conglomerate Bertelsmann, to combine Random House and Penguin into one giant publishing house.
The interest in Penguin underscores the urgency the publishing industry faces in combating the threat of technology companies like Amazon, Google and Apple, whose inexpensive e-books are rapidly transforming the traditional book business.
Analysts have said consolidation of the “big six” publishing houses is inevitable given the headwinds the industry faces as consumers turn to e-books and as brick-and-mortar stores continue to close. They likened it to the consolidation of record labels when the music industry evolved to deal with the challenge from iTunes and the downloading of songs.
“Publishers now face a single dominant book retailer, Barnes & Noble, and a single dominant online retailer, Amazon,” said Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a consultant to publishers.
Acquiring Penguin, whose revenues have been in a slide in recent years, would provide an opportunity for an existing publishing company to gain scale and cut costs by eliminating redundant imprints and combining operations like distribution and marketing. Additionally, a combined company would have the greater heft necessary to better negotiate with Amazon and other e-book retailers.
For News Corporation, a book-related acquisition would line up with its near-term corporate strategy. In the coming months, the company is expected to complete the planned spinoff of its publishing assets — including HarperCollins, its book publisher, and newspapers like The Wall Street Journal and The New York Post — into a separate, publicly traded company.
Mr. Murdoch is said to have proceeded with the split this summer in part because a separate publishing company would allow him to explore acquisitions without facing fierce resistance from shareholders, according to several people familiar with the company’s thinking. News Corporation’s last major acquisition, of Dow Jones & Company, publisher of The Journal and Barron’s, for $5.6 billion in 2007, was widely met with investor resentment.
News Corporation’s interest in Penguin was first reported in The Sunday Times, a London paper that is also owned by News Corporation. According to The Times, News Corporation is exploring a cash offer of $1.6 billion. Such an overture could prompt a competitive bidding war and bring Pearson a premium on a business it reportedly has considered unloading.
Officials with News Corporation and Pearson declined to comment.
If completed, a merger of Penguin and Random House would create a publishing behemoth that would control roughly 25 percent of all books published in the United States. That kind of scale would present major competition for HarperCollins.
For News Corporation, owning Penguin could also lift the media company’s fledgling education business, recently named Amplify. Mr. Murdoch picked the former New York City schools chancellor Joel I. Klein to build the division, which provides digital learning tools to teachers and students. The education division will also be a part of the newly spun-off publishing company.
Revenues at News Corporation’s book-publishing business grew by 11 percent, or $128 million, in the fiscal year that ended June 30, 2010, compared with a year earlier, largely related to the success of “Going Rogue” by Sarah Palin and a jump in e-book sales, the company said in its annual report. In the fiscal year that ended June 30, 2011, News Corporation did not break out revenues for the book division but said it struggled because of “lower book sales due to fewer new releases” and “lower licensing fees.”
HarperCollins’s stable of authors includes Joyce Carol Oates and Paulo Coelho.
Penguin reported $1.61 billion in revenue in 2011, a 4 percent decrease from the previous year. About 12 percent of Penguin’s total revenue last year came from e-books, up from 6 percent in 2010, according to Pearson’s annual report. Pearson announced this month that its longtime chief executive, Marjorie Scardino, would step down at the end of the year, which led to speculation that the company would seek to sell its print units, including Penguin and The Financial Times, in order to focus on its more lucrative education business.
John Fallon, Pearson’s incoming chief executive, said in an Oct. 3 interview that the “portfolio of Pearson, it’s constantly changing and evolving,” and that “we never rule out anything.”
The last big merger in the book industry was Bertelsmann’s 1998 acquisition of Random House for more than $1 billion.
On Thursday, reports of discussions between Random House and Penguin brought concerns among some authors and their representatives, who worried that fewer imprints would mean fewer bidders for books. “The optimist in me hopes that in any restructuring of the new company, the editorial side would largely be left alone, so the number of books — and authors — published would not dramatically decrease,” David Gernert, a literary agent, said in an e-mail.