LONDON (SHARECAST) - Financial Times owner Pearson drifted lower after it announced the merger of Penguin books and rival publisher Random House.
The deal would create a firm responsible for publishing a quarter of English language books worldwide.
The news came as Pearson released figures that showed in the first nine months of the year Penguin revenues fell 1% compared to the same period in 2011.
Under the terms of the agreement, Penguin and Random House will combine their businesses in a newly-created joint venture named Penguin Random House.
However, it will not be a merger of equals, with Random House's parent firm, Bertelsmann, to own 53% of the joint venture and Pearson taking 47%.
Bertelsmann will nominate five directors to the board of the new company and Pearson will nominate four.
Marjorie Scardino, Chief Executive of Pearson, said the combination would "greatly enhance" Penguin's fortunes and its opportunities.
The company said the combined organisation would have a stronger platform and greater resources "to invest in rich content, new digital publishing models and high-growth emerging markets".
It also said there would synergies from shared resources such as warehousing, distribution, printing and central functions.
But the merger was not met with quite such enthusiasm by some company analysts.
There had been reports that News Corporation, owner of HarperCollins publishing house, had joined the race with a bid for Penguin worth in the region of £1bn.
David Reynolds at Jefferies International said he "much preferred" this outcome to the Random House merger.
"We see book publishing, like newspaper publishing as particularly challenged by digital disruption," he said.
"The regulatory barriers are less material [to the potential News Corporation deal] than the Random House merger option, the exit immediate and the consideration cash."
Under the terms of the deal neither Pearson nor Bertelsmann may sell any part of their shareholding in Penguin Random House for three years.
Pearson also announced its nine month figures, saying it was sticking with full year sales predictions and operating profits despite tough conditions.
The company said that sales were up 5% and operating profit down 5% in the first nine months of the year.
Sales were driven by good growth at International Education and the FT Group and a 'resilient' performance in North American Education.
The drop in operating profits reflected the sale of FTSE in 2011, acquisition integration costs and continued weakness in UK professional training, the firm said.
Its Professional Education division struggled, with the take-up of new training programmes being slower-than-expected.
As a result, the company expects full-year profits in Professional Education to be significantly lower than in 2011.
The highlight was International Education, where sales were up 13% after nine months.
Pearson said its digital and services businesses continued to grow, with sustained momentum in English language schools in China, school services in India, higher education in South Africa and school learning systems in Brazil.
However, textbook publishing remained generally weak, particularly in markets where purchases are publicly-funded.