It wasn’t that long ago I provided an update on the Penguin Random House and Simon & Schuster situation, but now there’s been a new development.
The Would-Be Merger
To recap, Penguin Random House, owned by Bertelsmann, agreed to pay ViacomCBS (now Paramount Global) $2.175 billion for book publisher Simon & Schuster in November 2020. Penguin Random House and Simon & Schuster are part of the “Big 5”, a nickname for the five largest book publishing companies in the United States. Out of the Big 5, Penguin Random House is the largest, having turned the Big 6 into the Big 5 years ago. Buying Simon & Schuster would have made them even bigger, and analysts and critics said the new Penguin Random House could be considered the first megapublisher.
Executives for Simon & Schuster and Penguin Random House downplayed antitrust and antiworker concerns, such as lower pay for writers. Analysts wondered whether the US Government would challenge the merger; on one hand, many other big companies have made major acquisitions, but there was also a new administration in charge. Current Attorney General Merrick Garland filed a lawsuit to stop the purchase in November 2021 on the basis of monopsony — in other words, it would negatively impact workers (i.e. writers) by limiting their options to where they can be employed (i.e. a publisher to buy their manuscript).
A judge heard the case in August 2022, and the court sided with the Government and permanently blocked the deal.
The judge’s findings were initially held back due to redactions needing to be made, but the ruling is now available online.
Publishers Weekly highlights key sections of Judge Pan’s opinion here. Suffice to say, she vehemently disagreed with the publishers’ arguments about how the deal would not lessen competition in the field, especially with expected bestsellers.
While Penguin Random House and Paramount vowed to appeal, The New York Times reported their purchase agreement was set to expire soon and would need to be renewed. Now, though, Paramount has given up on the merger, reportedly “because of the protracted uncertainty hanging over Simon & Schuster and the limited prospects for securing merger approval through an appeal”. Penguin Random House reiterated its belief they would have won on appeal, but because of Paramount’s decision, Penguin Random House must pay $200 million to Simon & Schuster’s owner as a breakup fee.
What’s Next?
Paramount still intends to sell their book division. Originally, the company hoped Simon & Schuster would fetch $1.2 million, and analysts predicted around $1.5 billion.
Penguin Random House’s bid of $2.175 billion was significantly higher than that, so ViacomCBS was obviously thrilled. It may seem hard to get that much now that Penguin Random House isn’t an option, and they offered so much for Simon & Schuster because Penguin Random House predicted they could save about $81 million from merging.
Still, Simon & Schuster is having a banner year, so Paramount could still fetch a sum higher than 2020’s estimates, although publications like the Financial Times express doubt that will happen.
Either way, there is still the question of who would be able to buy them. While the three remaining members of the Big 5 are smaller than Penguin Random House (and at least two of them are still interested in buying Simon & Schuster), the US could still sue to block any merger that would lead to the publishing industry becoming led by the Big 4. Hachette Book Group may be the one who would have the least amount of government resistance, as they only have about 11% of the anticipated top sellers, slightly less than Simon & Schuster’s 12% and much less than Penguin Random House’s 37%.
Still, Hachette or anyone else would likely have to add legal fees and worries on top of their purchase price in case of another lawsuit, so they may decide to pass. Other possible bidders for Simon & Schuster include private equity firms and Vivendi, a French media conglomerate and owner of Dailymotion.
Ripple Effects
This trial was rather unique in both being a major pushback for megamergers after years of allowing them to proceed and even moreso with the Government’s monopsony argument. But now there could be more challenges against consolidation in the future.
For instance, once again the Justice Department is analyzing the Ticketmaster-Live Nation deal from 2010. The combined merger of the ticketing and venues giant has been often criticized — especially in recent years and even months — of being a monopoly. The two control about 60% of major live events, and they have been found to have been repeatedly breaching their agreement with the Department of Justice, which is why the terms were extended to 2025 instead of ending in 2020.
Anyway, now all the major manga publishers minus Yen Press will not be distributed by a single company. That would have been a major consolidation for the industry and would have made it hard for any non-Penguin Random House distributed manga to get promoted or wind up on store shelves.
But while Penguin Random House’s role in the saga has come to a close, the story is not over yet. If Hachette Book Group ends up with Simon & Schuster, that would mean Yen Press’ and VIZ Media’s offerings would be under one umbrella. Still not nearly as unbalanced if VIZ Media, who is distributed by Simon & Schuster, were to join Kodansha Comics, Seven Seas, Square Enix, and Dark Horse at Penguin Random House.
But while Hachette would like to own Simon & Schuster, at this point, it’s a tossup as to whether such a deal would go through, at least not without some concessions from the companies. It took two years to reach this conclusion between Penguin Random House and Simon & Schuster, and it might never have been challenged without a change of administration. If there’s another shift in the US government’s leadership, well, we might still end up with the Big 4 with little pushback.