German media giant Bertelsmann to buy Random House

Weekly Corporate Growth Report, Mar 30, 1998

By acquiring Random House, Bertelsmann A.G. will not only become the hugest commercial book publisher in the United States, but it will also become the largest in the world. Not bad for a company that started out over 150 years ago by selling Christian music books and stories by the Brothers Grimm. The privately held company even remains under the control of a descendant of Carl Bertelsmann, the company's original founder.

Bertelsmann A.G, the German media conglomerate, has agreed to buy Random House, the crown jewel of American publishing, in a deal worth an estimated $1.4 billion. Random House was likely sold for 1.3 to 1.5 times the company's estimated annual revenues of $870 million. The publishing company will be bought from Advance Publications Inc., which is controlled by the Newhouse family. Random House and Bantam Doubleday Dell will be operated separately until the deal is approved by US antitrust authorities.

The deal will give Bertelsmann English-language sales of $1.1 billion to $1.7 billion. The company will merge its Bantam Doubleday Dell division with Random House. As a result, Bertelsmann will increase to 10% from close to 6% its share of the $21 billion total book market in the United States. The combined company will be a media superpower that will not only dominate book publishing, but will have incredible clout over retailers, agents, and Hollywood.

Bertelsmann has made public for months its desire to buy an American company that would serve to expand it into the US, the largest market for books in the world. The German company is currently ranked fifth among publishers in the US.

It has certainly hit jackpot with Random House and its highly desirable backlist of classics by authors ranging from James Joyce to Dr. Seuss. Despite the fact that book publishers have been suffering from an increasingly brutal profit crunch, Random House remains profitable.

Of course, this is in large part due to a stable of writers who turn out bestsellers. Among them are Michael Crichton, who can do no wrong these days, Anne Rice, Gore Vidal, Norman Mailer and Toni Morrison.

The move will also help Bertelsmann in its efforts to become a force to be reckoned with on the Internet. With its minority investment in America Online, the company is in a position to take on Amazon.com in the fast growing market of on-line book sales.

(Sources: NY Times, Wall Street Journal)