Collapse of a major merger breaks the pattern of consolidation in US publishing

After two years of regulatory scrutiny and heated speculation in the publishing world, a bitter court battle and hundreds of millions of dollars in expenses, the agreement for the acquisition of Simon & Schuster by the Penguin Random House group was officially canceled on Monday. fair (21).

The rollback of the transaction prevented the largest publisher in the United States from becoming substantially larger. It also halted the process of consolidation in an industry that has been profoundly reshaped by mergers and acquisitions, with little intervention from regulatory authorities.

The implosion of the deal came three weeks after a federal judge ruled against Penguin Random House in an antitrust lawsuit, barring the transaction from going forward on grounds that the merger would reduce competition in the marketplace and hurt writers.

If it wanted to appeal the decision announced on Oct. 31, Penguin Random House would need Simon & Schuster parent company Paramount Global to extend the term of the acquisition deal, which expires on Tuesday. Instead, Paramount decided to cancel the transaction, which deprives Penguin Random House of legal options and forces it to pay a $200 million severance fee.

“Penguin Random House remains convinced that it is the best home for Simon & Schuster employees and authors,” the company said in a statement. “We believe the judge’s decision is a mistake and were planning to appeal, confident that we have compelling and persuasive arguments to present to reverse the lower court’s decision. However, we must accept Paramount’s decision not to go forward. “

The trial’s outcome came as a shock to many in the publishing world, where the number of major publishers has dropped to five—Penguin Random House, HarperCollins, Macmillan, Hachette, and Simon & Schuster—after the big companies acquired numerous smaller and larger publishers. midsize. Many people feared that further reducing the number of major publishers to just four would reduce the number of buyers that authors and literary agents can turn to, and make it even more difficult for smaller publishers to compete.

Many people especially feared that Penguin Random House—already the largest publisher in the United States by a wide margin—would grow even bigger by absorbing a rival. Penguin Random House controls about one hundred publishing houses; together they publish over 2,000 titles a year. The merger would have added Simon & Schuster’s approximately 50 publishing imprints, as well as the vast and valuable list of older titles in the company’s collection.

In the end, the Justice Department and the judge presiding over the case had similar concerns and blocked the deal, an outcome that some authors and industry organizations have welcomed because it represents a necessary brake on consolidation.

“The market is already too consolidated,” said Mary Rasenberger, president of The Authors Guild, an advocacy organization for writers that opposed the takeover. “A healthy publishing ecosystem needs to have many publishers with different tastes and interests, and different degrees of risk they are willing to take.”

The decision will prolong the period of uncertainty at Simon & Schuster, but the publisher is in a good position to weather it. The company’s recent performance has been strong, even as the results of other major publishers have deteriorated. Its profits for the first nine months of the year are up 29% compared with the same period last year, putting it on course for a record year.

Among her successes are several Colleen Hoover novels, which have dominated fiction bestseller lists, and a surprise bestseller, Jennette McCurdy’s “I’m Glad My Mom Died,” which sold a million. copies since it was published in August, the company announced.

“Simon & Schuster has never been as profitable and valuable as it is today,” Jonathan Karp, the publisher’s chief executive, said in a letter to employees on Monday. “As I’ve pointed out before, we’ll celebrate our 100th anniversary in April 2024 no matter who owns it — and we’ll have a lot to celebrate.”

In a statement released Monday afternoon, Paramount indicated that it does not think Simon & Schuster is a good fit with its broader strategy. “Simon & Schuster is a highly valuable business with a recent track record of strong performance, but its core business is not video and therefore does not strategically fit into Paramount’s broader portfolio,” the company said.

Until the Penguin Random House deal expires on Tuesday, Paramount is prohibited from discussing the sale of Simon & Schuster to other suitors. But Paramount is likely to consider a possible sale of Simon & Schuster once the year is out, according to a person familiar with the matter, who said the company will wait for an offer that reflects the publisher’s improved financial performance; the person said “off” for not being authorized to comment on confidential matters.

The list of suitors could include companies that expressed an interest in Simon & Schuster when it went up for sale, including French media conglomerate Vivendi and News Corp, parent company of HarperCollins, according to two people briefed on the matter, who did not allow their names to be mentioned because they were discussing confidential matters. Simon & Schuster is also likely to draw interest from potential finance buyers, according to the executive at a private equity firm who asked not to be named to discuss the deal’s strategy.

It is not known, however, whether the problems and legal expenses of the trial could dampen the interest of other publishers. During the trial, executives at two other major publishers, Hachette and HarperCollins, testified that they would like their companies to acquire Simon & Schuster. It’s also not clear how the Justice Department would view a takeover within the industry. Concerns about market share would be less pronounced—particularly in the case of Hachette, which is significantly smaller than Penguin Random House—but the number of publishers large enough to compete for the most expensive books would still drop from five to four.

Some antitrust experts said any transaction to sell Simon & Schuster to another of the Big Five publishers would likely face intense scrutiny from regulatory authorities.

“If anyone else wants to bid, they need to factor into their calculations the cost of litigation against the government,” said Erik Gordon, a professor of business administration at the University of Michigan.

The cancellation of the transaction also signals a period of uncertainty for Penguin Random House. The publisher revealed during the trial that its market share has been falling in recent years. The company hoped that the purchase of Simon & Schuster would offset this decline. Now, she will have to find another way.

Translated by Paulo Migliacci