New company to be known as Penguin Random House will account for about one in four books sold
But the news immediately unsettled some in the industry, which has already seen thousands of bookshops close as readers increasingly turn to Amazon for printed and now electronic books.
Andrew Franklin, founder of Profile Books, publisher of titles including Lynne Truss's Eats, Shoots and Leaves, said the deal was a "great shame" for publishing, and predicted that Penguin would lose its separate identity. "The myth is when you combine two great companies you get one even greater company," he said. "This will end up a complete takeover of Penguin.
"It isn't by chance that every Tesco looks the same. [Big publishers] love to promote diversity and localism, but that's not how it works."
Authors' representatives were more optimistic. Kate Pool, deputy secretary general of the Society of Authors, said that if the new venture delivered on its promises to continue to invest in content and titles at its current levels, then authors had nothing to fear.
"If they keep their promises then it could well be that at the coalface it doesn't feel that different to the average author. If publishers are struggling because the sands are shifting then they need reinforce what they have always done well – good rights deals, good advances.
"Given all the other upheavals confronting the publishing industry, this is just a drop in the ocean."
Founded by Allen Lane in 1935 to popularise reading with cut-price books aimed at the general reader, Penguin's 77-year independent history came to an end after five months of behind-the-scenes talks involving both corporations. The merged company, to be called Penguin Random House, will be a joint venture in which Bertelsmann, a media conglomerate controlled by the Mohn family, will retain a 53% stake. Pearson, which also owns the Financial Times, will retain the balance, with the two sides pledging to stick together for at least three years.
The company will have £2.5bn in revenues and almost £175m in profits.
Nevertheless, Franklin did not believe that the creation of such a dominant force would crush independent players, who account for about 44% of the market in the UK. "When you have really huge companies, paradoxically you leave more room for smaller, nimble players," he said. "Look at the film and music industry. It is often the big players struggling, not the independents."
John Makinson, Penguin's chief executive, who will head the new company's board, said the rationale behind doubling in size was to help both publishers make the transition from printed word to ebook.
Amazon is now selling 114 ebooks for every 100 printed books, helped by the popularity of its Kindle. "We are all worried, as the world moves to a more digital structure for content and distribution, that publishing could diminish, fewer books be published and fewer risks taken," said Makinson. "We hope to be able to offer more to readers and authors.
"This will give us resources, capacity and confidence to publish a broad array [of content] and to take risks. That is what good publishing is about."
Pearson also rejected a last-minute, tentative proposal from Rupert Murdoch, whose News Corp owns rival publisher HarperCollins, in part due to the fact that an outright sale of Penguin has tax implications in the US, where it has two-thirds of its business.
Penguin Random House will be run by Markus Dohle, chairman and chief executive of Random House Worldwide. It was not clear what would happen to other high-profile publishing executives, not least Dame Gail Rebuck, the chairman and chief executive of Random House. Both companies promised more details in the coming weeks.
The two owners are confident that though they will control more than 25% of the global book market, regulators will clear the deal. In Britain, the two groups' market share is closer to 30%.