Giants’ merger deal on verge of collapse

Penguin Random House’s deal to buy Simon & Schuster Inc, a rival publisher, is close to collapsing after Simon & Schuster’s parent company decided to allow the purchase agreement to expire, according to a person familiar with the decision who spoke anonymously to discuss confidential deliberations.

The deal was already in peril after a federal judge last month blocked the sale from going forward on antitrust grounds.

Penguin Random House had said it planned to appeal the decision. But it can only do so if Paramount Global, Simon & Schuster’s parent company, agrees to extend the deal, which expires today.

The collapse of the $2.175 billion sale is a major blow to Penguin Random House’s ambitions to expand its enormous market share, and an enormously expensive one.

In addition to the significant legal cost of fighting the Justice Department in court, Penguin Random House will have to pay Paramount a termination fee of about $200 million once the deal falls through.

Paramount has decided not to proceed with the merger after concluding that it wasn’t worth challenging the Justice Department in court, according to a person familiar with the company’s strategy.

Simon & Schuster’s improved financial performance gives Paramount options should it choose to put it back on the market.

Paramount’s decision not to go forward with an appeal was earlier reported by Reuters. Spokespeople for Penguin Random House, Simon & Schuster and Paramount declined to comment Sunday night.

When the deal was announced in 2020, most of the publishing industry assumed the government would approve it, further cementing Penguin Random House’s status as the largest publisher in the United States.

But the Justice Department last year sought to block it, arguing that the merger would result in less competition for books, and would drive down authors’ advances, particularly authors of books that were expected to be top sellers.

Penguin Random House argued that a merger would give more authors access to its highly regarded distribution network, and that efficiencies created by combining the two companies would allow it to pay authors more.

The judge, Florence Pan, sided with the Justice Department, writing in her opinion that the “government has presented a compelling case that predicts substantial harm to competition as a result of the proposed merger of PRH and S&S.”

It was an important victory for the Biden Justice Department, which has taken an aggressive stance against corporate consolidation. Judges have ruled against the government in several of its challenges.

Penguin Random House called the judge’s decision “an unfortunate setback for readers and authors,” and said it planned to immediately request an expedited appeal.

In a letter to employees, Jonathan Karp, Simon & Schuster’s CEO, sought to reassure his staff.

“Despite this news, our company continues to thrive,” he wrote. “We are more successful and valuable today than we have ever been.”

Paramount’s decision to exit the deal rather than extend it and seek an appeal means that Simon & Schuster once again faces an uncertain future.

The company has posted record results in recent quarters, with sales rising nearly 20% in the first nine months of 2022, even as some publishers have posted lacklustre results.

Its success and deep backlist of older titles, including works by authors like Stephen King, make it an attractive company to buy.

At trial, the CEOs of both Hachette Book Group Inc and HarperCollins Publishers Ltd, two other large publishers, said they might be interested in doing so.