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Venerable publishing house Penguin will merge with Random House to create the world's largest book publisher.

Penguin owner Pearson signed off on the deal with Random House owner Bertelsmann today declaring that the merger was the best way for the two dead-tree publishers to take advantage of new digital publishing models, rich content and high-growth emerging markets.

Merging to become Penguin Random House (no, not Random Penguin) will allow them to pool resources including warehousing and distribution and control a bank of content - over 25 per cent of the books sold today. It will give the publishers greater leverage in a market where Amazon and Apple are starting to set prices.

According to Bloomberg, the combined company will control 29 per cent of US publishing sales and 26 per cent of UK publishing sales.

For readers, Penguin Random House promises a greater choice of backlist and frontlist titles and authors are promised a greater "depth of service".

Outgoing CEO of Pearson, Marjorie Scardino, said:

Penguin is a successful, highly-respected and much-loved part of Pearson. This combination with Random House – a company with an almost perfect match of Penguin’s culture, standards and commitment to publishing excellence – will greatly enhance its fortunes and its opportunities.

In 2011, Random House reported revenues of €1.7bn (£1.48bn) and operating profit of €185m (£161m). Penguin reported revenues of £1.0bn and operating profit of £111m with total assets of £1.0bn.

Penguin is understood to have turned down a £1bn offer from Rupert Murdoch's Harper Collins in order to go with Bertelsmann and Random House. The merger will see Bertelsmann own 53 per cent of the new company, with Pearson holding 47 per cent. The venture’s chief executive officer will be Markus Dohle, now CEO of Random House, and Penguin CEO John Makinson will be chairman. ®

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