Publisher Penguin says buying a rival will boost many

Penguin Random House, the largest book publisher in the U.S., said in a court filing Monday that its plan to buy competitor Simon & Schuster would be a boon for the industry, benefiting authors, booksellers and readers.

The Justice Department has disagreed. Last month, it sued to stop the $2.18 billion acquisition, as the Biden administration takes a more skeptical view of corporate consolidation across industries.

In its complaint, the department attacked the deal on the grounds that it would harm bestselling authors because they could receive lower pay with one fewer publisher competing to acquire their books. It documented several bidding wars between Penguin Random House and Simon & Schuster that went into six and seven figures and argued that if the proposed merger goes through, those authors would not have received such lucrative advances.

By focusing on authors’ pay, the department signaled it is taking a more sweeping view of antitrust law. For decades, it has been used to block deals on the grounds that consumers can be harmed when big companies with few competitors can raise their prices. But in its suit to block Penguin Random House, the government does not claim that the prices for books will rise for readers or for booksellers, but instead argues that if Penguin Random House gets even larger, it will have more leverage over authors.

In the joint response filed Monday in the U.S. District Court for the District of Columbia, Penguin Random House and Simon & Schuster said the government’s argument misunderstands the way the industry functions.

“The government wants to block the merger under the misguided theory that it will diminish compensation to just the highestpaid authors,” said Daniel Petrocelli, a lawyer representing Penguin Random House and its parent company, Bertelsmann. “That is legally, economically and factually wrong, and it ignores the vast majority of authors who will indisputably benefit from the transaction.”

Penguin Random House is defending its plan in part because it stands to lose millions of dollars if it does not go through. Acquisitions such as these often come with termination fees that are owed to the prospective seller if the transaction does not close. In this case, Penguin Random House would have to pay Simon & Schuster’s seller, ViacomCBS, about $200 million.

A scheduling hearing is set for today.