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Freshfields, Slaughters and Morgan Lewis act as Bertelsmann buys further stake in $3.55bn Penguin Random House

Freshfields Bruckhaus Deringer, Slaughter and May, Morgan Lewis & Bockius and Davis Polk & Wardwell all returned to act as co-owner Pearson agreed to sell a further 22% stake in Penguin Random House (PRH) to Germany’s Bertelsmann, with the UK education company aiming to recapitalise the business to generate net proceeds of around $1bn.

Bertelsmann said the transaction would give it a total 75% stake in the company, valued at $3.55 billion. 

Pearson said that deal was designed to strengthen its balance sheet and return £300m of surplus capital to shareholders under a share buyback scheme, retaining a 25% stake in the consumer publisher to generate further income. 

The firms also led in 2013 when PRH was formed through a £2.4bn tie-up between Pearson’s Penguin Books and Bertelsmann’s Random House, creating the world’s largest book publisher by revenue.

The transaction is subject to approval by the relevant authorities and is expected to close in September.

Freshfields led for Pearson on all UK matters, with a team including M&A partner Simon Marchant and tax partner Paul Davison, both based in London.

Slaughters advised long-standing client Bertelsmann on UK matters, with a team led by M&A partner Craig Cleaver, competition partner John Boyce and tax partner Tony Beare.

Davis Polk & Wardwell advised Bertelsmann in the US on its acquisition of its 22% stake from Pearson, led by New York-based partners Michael Davis, Michael Mollerus, and Frank Azzopardi.

The Morgan Lewis team advising Pearson in the US included New York and Philadelphia-based M&A partners Charles Engros and Benjamin Wills, and New-York tax partner Richard Zarin.

Freshfields, Slaughters, Morgan Lewis and Davis Polk, alongside Cooley, all previously advised on the 2013 deal. Freshfields’ Simon Marchant, Slaughters’ Craig Cleaver and Morgan Lewis’ Benjamin Wills and Charles Engros all led on the transaction at the time.

As Pearson reduces its holding in PRH from 47% to 25% to recapitalise its business, German media company Bertelsmann increased its stake in the joint venture from 53% to 75%. 

Pearson announced earlier this year it would shrink its 47% stake in PRH due to a decline in the FTSE100 company’s revenues, after it issued its fifth profit warning in four years. The $1bn proceeds from this transaction include a planned £300m share buyback to return excess capital.

Bertelsmann operates in 50 countries and includes broadcaster RTL Group, Penguin Random House, Gruner + Jahr, BMG, Arvato, Bertelsmann Printing Group, Bertelsmann Education Group and Bertelsmann Investments. Penguin Random House is comprised of 250 individual publishers.