Book groups begin difficult chapter An analyst estimates that Pearson, owner of Penguin, would end up with 40 per cent of the merged group Industry executives have already dubbed it Random Penguin. But what to call a merged Random House and Penguin is the least of the questions the publishers" owners must resolve if they are to turn their talks into an agreed deal. Bertelsmann, the German group that owns Random House, has been in talks with Pearson, the education group that owns Penguin and the Financial Times, for months, people familiar with the discussions say. Thomas Rabe, Bertelsmann's chief executive, declined to comment at a press briefing in Beijing on Friday, beyond pointing to Pearson's confirmation on Thursday that discussions were under way but that there was no certainty of a deal. People close to the company said executives were working "day and night" to clear hurdles in the path of the biggest merger the book business has seen. Unresolved issues include what stakes Bertelsmann and Pearson would hold in the new company. Random House made earnings before interest and tax of €185m on sales of €1.75bn last year, while Penguin reported ebit of £111m on revenues of £1.05bn. Taking a five-year view to iron out fluctuations because of best-sellers, Mark Braley, a Deutsche Bank analyst, estimated that Pearson would end up with about 40 per cent of the merged group. The combination could improve profits by 10-20 per cent, said Claudio Aspesi of Bernstein Research. Any savings would have to outweigh synergies between Penguin and Pearson's education business, he said, but these have fallen by a quarter since 2008 as the rise of ebooks leaves both divisions less dependent on the printing and warehousing facilities they share. Analysts and executives agreed that the impetus behind the merger was the desire for scale in a fragmented industry that has struggled as Amazon.com has become the world's leading print and digital book retailer. "This merger would have been seen as a disaster 10 years ago," said John Mitchinson, publisher of Unbound, a crowdfunded publisher. But Amazon has so changed the nature of the game that this is an inevitable rearguard action. Random House was already the industry leader before its best-selling Fifty Shades series of erotic novels this year. According to BookScan data for the year to date, it accounts for 19 per cent of US print book sales compared to Penguin's 11 per cent. In the UK, it has a 16.2 per cent share compared to Penguin's 10.9 per cent share. The creation of a larger market leader is likely to guarantee close scrutiny from competition authorities. Publishers said they were unsure whether regulators would take the power of Amazon or other large technology groups like Google and Apple into consideration, however. "Certainly [in the US] they haven't given a damn about Amazon," a rival publisher said, citing Department of Justice allegations of collusion against Apple and five publishers, including Penguin, which Penguin is contesting. Regulators examining Universal Music's recent acquisition of EMI's record labels gave the two group's similar arguments about Apple's power in digital music short shrift. Andrew Wylie, the powerful literary agent, welcomed the proposed book combination, saying: "The weakness of individual publishing houses in the face of digital retailers needs to be addressed, and this addresses it." "They'll be able to get better terms from Amazon or tell Amazon goodbye," he said. Philip Jones, editor of the Bookseller, also predicted that the combined companies could invest in their own ereaders or websites for book sales. Otherwise, "if [Amazon] switch you off, you're not selling ebooks any more," he said. In the US, Amazon accounts for around two-thirds of print book and ebook sales, according to Codex Group, a book audience research firm. That has made many booksellers and publishers relatively relaxed about the proposed new publishing giant. James Daunt, head of Waterstones, said it would cause him little more than a "nostalgic lament." Peter Osnos, founder of Public Affairs, an independent imprint, said that after a generation of "drastic change" in the industry, "I think major developments of this kind represent opportunities." The impact on authors could be more significant, however. "I can't see this being good news for a lot of authors," said Mr Mitchinson. The belly ache of publishers has been huge lists [of authors]. Any kind of merger will lead to rationalisation. The reduction in competition would bring down author advances, Mr Wylie predicted, and would reduce the number of books published, "which would not be a bad thing." Additional reporting by Kathrin Hille in Beijing