A major publishing deal is officially dead in the water as Paramount Global scrapped its sale of Simon & Schuster to Bertelsmann’s Penguin Random House, declining to pursue an appeal after the Department of Justice sued to block the merger and a federal judge upheld the government’s position.
The sale was announced two years ago, in Nov. of 2020, as the former ViacomCBS was shedding noncore assets to raise cash and pay down debt. President Biden’s more activist DOJ reviewed the deal and sued to block in Nov. of 2021, arguing the transaction would create a behemoth publisher likely to drive down payments to authors and “reduce quality, service, choice, and innovation.”
The government claimed that the merger was “presumptively unlawful,” leaning heavily on the fact that it would combine the largest book publisher, Penguin Random House, with the fourth in the marketplace, Simon & Schuster, creating a corporation with twice the revenues of its next closest competitor. The lawsuit focused on the impact of the deal on author payments, rather than on the traditional purview of antitrust, consumer prices. It identified a host of instances where the two publishers competed against each other for the U.S. rights to books.
“Penguin Random House and Simon & Schuster are frequently invited by agents to bid in auctions for the rights to these books, and they are often the final two bidders. Competition between Penguin Random House and Simon & Schuster has resulted in higher advances, better services, and more favorable contract terms for authors,” the DOJ said.
Attorneys for Penguin Random House argued unsuccessfully at a trial in August that the deal would not drive down author advances and they will “continue to go up.” Federal Judge Florence Pan “enjoined and restrained” the companies from consummating the proposed merger, finding that the government had shown that ‘the effect of [the proposed merger] may be substantially to lessen competition’ in the market for the U.S. publishing rights to anticipated top-selling books.”
The two sides took a beat to consider their next move, including an expedited appeal, but Paramount closed the book today. The initial sale had been subject to regulatory approval. Rivals led by News Corp.’s HarperCollins sounded the alarm immediately. Authors as well. Stephen King testified for the DOJ.
“On November 21, 2022, Paramount terminated the Purchase Agreement in accordance with its terms. Penguin Random House is obligated to pay a $200 million termination fee to Paramount,” the company announced in an SEC filing.
But it made clear that isn’t the end of the story and it still doesn’t see a future for the publisher as part of its portfolio long term. “Simon & Schuster remains a non-core asset to Paramount, as was determined in early 2020 when Paramount conducted a strategic review of its assets. 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,” Par said.