US sues to stop Penguin Random House and Simon & Schuster merger
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US regulators have sued to block the merger of Penguin Random House and Simon & Schuster, which would have created a mega-publisher in the US books market, in one of the Biden administration’s most significant antitrust moves yet.
Bertelsmann, which owns Penguin Random House, last November struck a $2.2bn deal to acquire Simon & Schuster from ViacomCBS, significantly outbidding Rupert Murdoch’s News Corp in a deal that aimed to merge some of the world’s most popular authors, from EL James and Stephen King to George Orwell and F Scott Fitzgerald.
The justice department alleged that the two companies would control more than two-thirds of the market for acquiring publishing rights after merging, squeezing advances and resulting in “substantial harm to authors of anticipated top-selling books and ultimately, consumers”, according to a lawsuit filed on Tuesday at Washington federal court.
The DoJ complaint said a senior Penguin Random House executive told a colleague: “I would not want to be a big author at Simon & Schuster now.”
Bertelsmann had previously dismissed concerns raised by the Murdoch group that the proposed tie-up would create an anti-competitive “behemoth” of books. “We are very confident that this transaction will be cleared . . . otherwise we would not have taken the decision,” Bertelsmann chief executive Thomas Rabe told the Financial Times last year.
The publishers said in a joint statement on Tuesday: “Blocking the transaction would harm the very authors DoJ purports to protect. We will fight this lawsuit vigorously and look forward to PRH serving as the steward for this storied publishing house in the years to come.”
According to the DoJ complaint, when Simon & Schuster announced it was up for sale in March 2020, its current chief executive, Jonathan Karp, wrote to a best-selling author: “I’m pretty sure that the Department of Justice wouldn’t allow Penguin Random House to buy us, but that’s assuming we still have a Department of Justice.”
While the companies have publicly signalled the deal would create a needed counterweight to Amazon, which has ravaged the publishing business, Penguin Random House’s chief executive privately admitted that he “never, never bought into that argument” and that one “goal” after the merger was to become an “exceptional partner” to the tech giant, according to the complaint.
The lawsuit comes after Joe Biden in July signed a sweeping order intended to curb the power of big business by stamping out anti-competitive practices.
The order included 72 separate measures spanning industries from technology and transport to healthcare and banking. Biden also called for stronger enforcement of existing US antitrust laws, a potential trigger for greater scrutiny of mergers and acquisitions activity.
US authorities sued to block another mega-merger this year. Aon and Willis Towers Watson in July abandoned a $30bn tie-up that would have created the world’s biggest insurance broker. They have also asked a court to stop an agreement between American Airlines and JetBlue to consolidate operations in New York and Boston.
One person involved in the Simon & Schuster sale process said Bertelsmann agreed to pay a fee if it walked away from the transaction, and accepted a “hell or high water” clause that effectively locked in the deal unless it was blocked by regulators.
Penguin Random House had been expecting to receive regulatory clearance by the end of this year. The company has hired lawyer Daniel Petrocelli, who defended AT&T and Time Warner when the DoJ tried to block their $80bn merger.
Additional reporting by Kiran Stacey in Washington