Riverdeep's controlling shareholder, Barry O'Callaghan, will remain the dominant figure in the company following its $5 billion (€3.98 billion) reverse takeover of US book publishing giant Houghton Mifflin.

Mr O'Callaghan plans to stay on as chief executive and chairman of the new group, whose head-office will be in Dublin. His friend and counterpart at Houghton Mifflin, Tony Lucki, will be group president with responsibility for the book division.

Mr Lucki is a former non-executive director of Riverdeep, which delisted from the Irish Stock Exchange in 2002. Two of Riverdeep's current senior management team - Ciara Smyth and Craig Greenwood - have worked in the past with divisions of Houghton Mifflin.

The deal under discussion stems from Houghton Mifflin's need to tap into the online market in the US. The publisher's educational books are profitable but sales are under threat from the advance of Internet-based education services, Riverdeep's area of expertise.

With offices in San Francisco and Iowa, Riverdeep has significant operations in the US and claims to be the fastest-growing consumer software company in that market. While its online and CD-ROM products can be found in more than 45,000 schools in 20 countries, the Houghton Mifflin deal will significantly increase its scale.

While neither Riverdeep nor Houghton Mifflin would comment yesterday on their dialogue, Mr O'Callaghan is understood to be in the advanced stages of raising finance for the transaction. Possible sources of finance include Credit Suisse First Boston, which has had dealings with Riverdeep in the past.

Houghton Mifflin has been in business since 1832, and the group is controlled by private equity groups Thomas H Lee, Bain Capital and Blacksone.

They acquired the publisher in 2002 for $1.6 billion from Vivendi Universal, the French group.

The Riverdeep deal is understood to value the US company at more than $3.5 billion. Riverdeep's own valuation of $1.5 billion means the combined group will be valued in excess of $5 billion. On that basis, the transaction will be the second largest deal in Irish corporate history after Jefferson Smurfit's takeover last year of Kappa Packaging.