News Corporation is preparing to make a cash offer worth as much as £1bn for Pearson's Penguin Group, throwing plans to merge the major book publisher with rival Random House into disarray.
Penguin and Random House were weighing up a deal in an attempt to capitalise on the rise of the e-book and wrestle back industry leadership from technology interlopers Apple and Amazon.
Now, however, Rupert Murdoch, chairman and chef executive of media conglomerate News Corp, is said to have approached Pearson about an all-cash offer of about £1bn to buy Penguin, publisher of a party planning guide by Pippa Middleton, pictured. A deal would see Penguin combined with News Corp's existing staple of books under its ownership of publisher HarperCollins.
News of Mr Murdoch's appetite for a deal will worry Germany's Bertelsmann, which owns Fifty Shades of Grey publisher Random House. It said last week that it could join with Penguin to become a single powerhouse in a £2.4bn deal, with the German group retaining a 60 per cent stake in the combined business.
Any News Corp bid would be subject to due diligence. Either deal would also face close scrutiny from regulators. A Penguin-HarperCollins tie-up would give the publishers a market share of 20 per cent while a merger of Penguin with Random House would control nearly 30 percent of English-language book sales. The latest twist comes amid ongoing questions over the future direction of Pearson, whose long-serving boss Dame Marjorie Scardino steps down at the end of the year. She was thought to have preferred a deal with Random House, in contrast to other Pearson bosses who were keen on launching talks with News Corp.
The publishing industry has been remodelled by the launch of e-book readers such as Amazon's Kindle. Penguin's sales fell 4 per cent to £441m in the first half of this year, and
profits nearly halved to £22m because of "continued pressure on physical book retailing".
Where once publishers could set their own prices, digital book sales and the rapid rise of Amazon have eroded their powers of negotiation. Apple and several leading publishers were sued by the US Department of Justice this year for alleged collusion. Most parties agreed to settle.
Pearson and News Corp declined to comment.