Penguin in merger talks with Random House

Two of the world's largest book publishers are in talks to create a new market leader designed to wrestle back leadership of the industry from the technology interlopers Apple and Amazon.

Random House and Penguin, which is owned by the Financial Times publisher, Pearson, are weighing up a merger in response to the rise in popularity of ebooks which is shaking up their business models.

A deal would combine the companies who are respectively behind Nigella Lawson's latest Italian cooking adventure and Pippa Middleton's party-planning guide.

German-owned Random House has also experienced huge success this year with the Fifty Shades of Grey trilogy. A tie-up is expected to leave the privately held media group, Bertelsmann, with a majority share in the new venture, which would control a quarter of the market in Britain and America and dominate the bestseller lists.

It also raises questions over the future direction of Pearson, whose long-serving boss, Dame Marjorie Scardino, steps down at the end of the year. She remoulded the FTSE business into an education giant, but stood firm behind the FT, leaving analysts to speculate that the newspaper – not Penguin – would be sold when John Fallon succeeded her. However, a deal would be scrutinised by competition authorities.

In Britain, Random House is the second largest book publisher, followed by Penguin. The market leader is French-owned Hachette. Fourth comes Rupert Murdoch's HarperCollins, which is due to be spun off from News Corporation together with the mogul's newspaper assets.

"Pearson confirms that it is discussing with Bertelsmann a possible combination of Penguin and Random House," a company statement said. "The two companies have not reached agreement and there is no certainty that the discussions will lead to a transaction. A further announcement will be made if and when appropriate."

It has dealt with Pearson before. The pair amalgamated their TV businesses to create what is now RTL,

Penguin was the culprit for a sharp fall in Pearson's first-half operating profits, which crashed to £22m against £42m, with sales down 4 per cent to £441m.