A huge merger’s collapse breaks a pattern of consolidation in publishing
By Elizabeth A. Harris, Alexandra Alter and Benjamin Mullin
After two years of regulatory scrutiny and heated speculation in the publishing world, after a hard-fought court battle and hundreds of millions of dollars in expenses, Penguin Random House’s deal to buy Simon & Schuster officially collapsed earlier this week.
The unraveling of this agreement stopped the largest publisher in the United States from growing substantially larger. It also paused consolidation in an industry that has been profoundly reshaped by mergers and acquisitions, with little regulatory intervention.
The implosion of the deal came three weeks after a federal judge ruled against Penguin Random House in an antitrust trial, blocking the sale from going forward on the grounds that the merger would be bad for competition and harmful to authors. In order to appeal the Oct. 31 ruling, Penguin Random House needed Paramount Global, Simon & Schuster’s parent company, to extend the purchase agreement, which expires Tuesday. Instead, Paramount decided to terminate the deal, leaving Penguin Random House out of legal options and obligated to pay them a termination fee of $200 million.
“Penguin Random House remains convinced that it is the best home for Simon & Schuster’s employees and authors,” Penguin Random House said in a statement. “We believe the judge’s ruling is wrong and planned to appeal the decision, confident we could make a compelling and persuasive argument to reverse the lower court ruling on appeal. However, we have to accept Paramount’s decision not to move forward.”
The outcome of the trial came as a shock to many in publishing, who have watched the number of big firms dwindle to five, even as those five — Penguin Random House, HarperCollins, Macmillan, Hachette and Simon & Schuster — got larger by buying small and midsize publishing houses. Many feared that the further reduction in the number of big publishing houses to four would leave authors and literary agents with fewer buyers for their books and would make it even harder for smaller publishers to compete.
Many were especially wary of Penguin Random House — already by far the largest publisher in the United States — getting even bigger by absorbing a rival. Penguin Random House has about 100 imprints; together, they publish more than 2,000 titles a year. The merger would have given it Simon & Schuster’s approximately 50 imprints, as well as the company’s vast and valuable backlist of older titles.
As it turned out, the Justice Department and the judge who heard the case had similar concerns and blocked the deal, an outcome that some authors and industry organizations celebrated as a necessary check on consolidation.
“The market is already too consolidated,” said Mary Rasenberger, CEO of The Authors Guild, an advocacy group for writers that opposed the purchase. “A healthy publishing ecosystem is one that has many publishers with different tastes and interests and degrees of risk they’re willing to assume.”
This extends a period of uncertainty at Simon & Schuster, but it is one they are in a good position to navigate. The company’s recent performance has been strong, even as the results have sagged at other major publishers. Its profits for the first nine months of the year were up 29% compared to the same time last year, putting it on its way to a having a record-breaking year.
Among its successes are several novels by Colleen Hoover, who has dominated the fiction bestseller lists, and a surprise bestselling memoir, “I’m Glad My Mom Died,” by Jennette McCurdy, which has sold 1 million copies since it was published in August, the company said.
“Simon & Schuster has never been more profitable and valuable than it is today,” Jonathan Karp, CEO of Simon & Schuster, said in a letter to employees Monday. “As I have noted before, we will be celebrating our 100th anniversary in April of 2024, regardless of who our owner is — and we will have much to celebrate.”
In a statement released Monday afternoon, Paramount indicated that it views Simon & Schuster as not a good fit for its broader strategy. “Simon & Schuster is a highly valuable business with a recent record of strong performance, however it is not video-based and therefore does not fit strategically within Paramount’s broader portfolio,” it said.
Until the agreement with Penguin Random House expires Tuesday, Paramount is prohibited from discussing a sale of Simon & Schuster with other suitors. But Paramount is likely to explore a potential sale of Simon & Schuster in the new year, according to a person familiar with the matter, who said the company will hold out for a bid that reflects its improved financial performance and who was not authorized to discuss confidential matters on the record.
The list of suitors could include companies that expressed interest in Simon & Schuster last time, including French media conglomerate Vivendi and HarperCollins owner News Corp, according to two people familiar with the matter who also were discussing confidential matters and spoke anonymously. Simon & Schuster is also likely to garner interest from financial bidders, according to an executive at a private-equity firm who spoke anonymously to discuss deal-making strategy.
It’s unclear, however, whether the headache and the legal expense of the trial could dampen the enthusiasm of other publishers. During the trial, executives for two other major publishing houses, Hachette and HarperCollins, testified that they would like their own companies to buy Simon & Schuster. It is also unclear how the Justice Department would view such an acquisition. Concerns about market share would be less pronounced — particularly for Hachette, which is significantly smaller than Penguin Random House — but the number of publishers big enough to compete on the most expensive books would still drop from five to four.
Some antitrust experts said that any deal to sell Simon & Schuster to another Big Five publisher would probably face intense scrutiny from regulators.
“If somebody else wants to put in a bid, they should put into their calculation, here’s the cost of litigating this with the government,” said Erik Gordon, a professor of business at the University of Michigan.
The end of the deal also signals a period of uncertainty for Penguin Random House. Penguin Random House revealed at trial that it has been losing market share in recent years. It had hoped that buying Simon & Schuster would make up for that slippage. Now, it will have to find another way.