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Penguin Random House's Acquisition of Simon & Schuster Terminated

Publishing business Simon & Schuster's parent company Paramount Global did not extend the purchase agreement it had with Penguin Random House to acquire Simon & Schuster on Monday, terminating the purchase and forcing Penguin Random House to pay Paramount Global a US$200 million termination fee.

A federal judge blocked the Penguin Random House acquisition of Simon & Schuster earlier this month, in agreement with the Justice Department's finding that the acquistion would have Penguin Random House "hold unprecedented control and outsize influence over which books are published in the U.S. and how much authors are paid," saying that the merger may be "substantially to lessen competition."

Penguin Random House sought to overturn the ruling with an appeal, but needed Paramount Global to extend the purchase agreement by Tuesday. Paramount Global's refusal to extend the agreement voided the acquisition.

The New York Times cited a source saying that Paramount Global will likely pursue selling Simon & Schuster in 2023, but will await a bid price that will match the publishing company's recent improved performance. Simon & Schuster's profits for the first nine months of 2022 were up 29% compared to 2021.

Background

ViacomCBS announced in November 2020 that it had agreed to sell the publishing business Simon & Schuster to Penguin Random House LLC, a wholly owned subsidiary of Bertelsmann SE & Co. KGaA, for US$2.175 billion. The cash transaction was expected to close in 2021. After the purchase, Simon & Schuster would continue as a separate publishing unit under the Penguin Random House umbrella. Simon & Schuster's President and CEO Jonathan Karp and COO and CFO Dennis Eulau would continue to head the company.

The U.S. Justice Department filed a lawsuit in November 2021 that sought to block Penguin Random House's acquisition due to antitrust concerns. The Justice Department said that if the deal went through, Penguin Random House would "hold unprecedented control and outsize influence over which books are published in the U.S. and how much authors are paid."

The American Booksellers Association (ABA) asked the Department of Justice in December 2020 to challenge the purchase due to antitrust implications, expressing concerns the purchase would lead to a large consolidation of power in the U.S. book publishing industry, which could make it more difficult for authors and editors to attract support they need to write books.

Penguin Random House and ViacomCBS's attorneys argued in court in December 2021 that the proposed acquisition would benefit authors and be "pro competitive," adding that it should not be blocked under federal antitrust law. Their attorneys claimed that the merger would allow Penguin Random House to bring "enhanced distribution capacity to a greater number of authors, including Simon & Schuster's authors." They also stated that the U.S. Justice Department cannot prove that the merger will reduce competition or diminish pay for book rights. Lead attorney for Penguin Random House Dan Petrocelli said that the merger "will only enhance competition."

Penguin Random House Publisher Services' clients include Seven Seas Entertainment, Kodansha USA Publishing (which handles the Kodansha Comics and Vertical imprints), Square Enix Holdings Co., Ltd. for its Square Enix Manga & Books publishing label, and Dark Horse Comics.

Simon & Schuster distributes Viz Media manga and novel publications in North America.

Source: The New York Times (Elizabeth A. Harris, Alexandra Alter, Benjamin Mullin) via ICv2