Investec has maintained its 'hold' rating and 1,240p target price for publishing group Pearson, saying that the possible merger between Penguin and Random House is 'not a game changer'.

Pearson announced on Thursday night that its consumer publishing division Penguin is in discussions with Bertelsmann regarding a "possible combination" of Pengiun and Bertelsmann's Random House business.

Investec analyst Steve Liechti notes that this follows speculation in the summer but nothing since has followed.

He said: "We view this as a possible net positive but not a game changer - while we see some EPS upside via near-term merger/cost synergies in a pressured top line business, this does not imply cash returns to shareholders or re-investment in long-term growth Education assets."

Liechti highlights that regulatory concerns could be a negative for the merger.

He notes that the two companies would have a 25% market share of the US industry with some geographies being even stronger - in the UK, Random House is the number-one market leader with a 16% share - so "some asset sales may be needed".

The market reacted positively to the developments on Friday, with shares trading 1.90% higher at 1,235p in mid-morning trade.

BC

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