Penguin Random House’s bid to acquire Simon & Schuster has officially ended. The news came in a filing by S&S parent company Paramount Global with the SEC, which said that, in accordance with the purchase agreement terms, it had terminated the deal. The purchase agreement was due to expire today unless Paramount agreed to an extension. Paramount added that PRH is now “obligated to pay a $200 million termination fee to Paramount.”
In a statement from PRH, the publisher said that while it was confident it “could make a compelling and persuasive argument to reverse the lower court ruling on appeal... we have to accept Paramount’s decision not to move forward.” In a decision handed down at the end of October, Judge Florence Pan blocked the acquisition on antitrust grounds.
In its announcement, PRH said it believes Judge Pan’s decision was wrong and that it remains convinced that it would have been the best home for S&S’s employees and authors.
In a note to S&S employees, CEO Jonathan Karp wrote, “At this point I have no specific information to impart about what will happen in the coming months.” Paramount, however made no secret that it intends to sell the publisher. In its 8-K filing with the SEC, Paramount said S&S remains a “non-core asset” and that while it remains “a highly valuable business” the publisher “is not video-based and therefore does not fit strategically within Paramount’s broader portfolio.”
In his letter, Karp warned employees about paying attention to sale rumors, and pointed to the fact that the company has “reached new heights of accomplishment" and "has never been more profitable and valuable than it is today.”
The Authors Guild, which had steadfastly opposed the merger, welcomed the news and hoped that the decision would put an end to more consolidation in the industry, a point that CEO Mary Rasenberger emphasized. "We will oppose any mergers among the Big 5 in the future," said Rasenberger in a statement. "As the court's analysis in the PRH lawsuit makes clear, the market for anticipated top-selling books is already highly concentrated, and five “big” publishers is already too few."
The key factor in Judge Pan's decision to block the PRH-S&S deal was that the combined companies would control 49% of the deals signed for anticipated top-selling books—books bought for more than an advance of $250,000 or more—with PRH already having a 37% share and S&S a 12% share. In the Guild's view, a purchase of S&S by another Big Five publisher should bring antitrust scrutiny.
Executives at HarperCollins and Hachette Book Group said during the trial that they would be interested in buying S&S if the PRH purchase didn't go through, but given Pan's decision both deals would certainly undergo an intense review by the government, particularly if HC were the buyer since it already has a 25% share of the anticipated top-selling books market. An acquisition by HBG, which has a 11% share, would likely face an easier review since a combined HBG-S&S company would hold a 23% share of the anticipated top-selling market, and would still trail PRH and HC.
But for the Guild, and to some extent Judge Pan, any more consolidation among the major publishers would hurt competition. "A healthy publishing ecosystem is one that has many publishers with different tastes, interests and degrees of risk willing to assume. The bigger any of the big 5 are the harder it is for the smaller and newer publishers to compete," Rasenberger's statement concluded.