* Their teacher and his books: This is perfectly acceptable and often the best choice if you want to emphasize the possessive relationship between the teacher and the books.
* Their teacher's books: This is a more concise option, implying that the books belong to the teacher.
* The books of their teacher: This is a more formal option.
The choice depends on the nuance you want to convey. If the sentence is, for example, "They studied using their teacher and his books," the first option is probably best. If it's "They borrowed their teacher's books," the second is better.