Three major news outlets are reporting that the sale of Simon & Schuster will likely be announced as soon as next week. A Reuters report said that the final three bidders are HarperCollins, the private equity firm KKR, and Richard Hurowitz of the investment firm Octavian & Company, who has the backing of the Abu Dhabi-based sovereign wealth manager Mubadala Investment Co. The New York Times has the final bidders as HC and KKR, while the Wall Street Journal said KKR was in advanced talks to buy the publishers. (One rumor that was making the rounds was that Barnes & Noble owner Elliott Advisors was making a bid. If that was true, they did not make the final cut based on the new reports). The second round of bids was due by the end of July.
The purchase prices is reported to be roughly $1.65 billion, a steep decline from the $2.175 billion Penguin Random House had agreed to pay before its acquisition was blocked by the Justice Department last year. S&S parent company Paramount walked away with a $200 million breakup fee, something that will sooth the pain if indeed the new price stays in the $1.65 billion range. That the price PRH was willing to pay was that high shocked the industry, and was reflective of both PRH’s determination to acquire the company and the better economic conditions publishing enjoyed in late 2020 as the pandemic resulted in a surge in book buying. Sales have cooled since the pandemic highs, and higher costs have put pressure on publishers’ profits.
S&S has had a record year fiscally, with sales of $1.18 billion, and posted a record first quarter for 2023, when sales increased 19% and operating income rose 16%. As impressive as those numbers are, it will be difficult for S&S to match last year’s performance given the challenges of slowing industry sales, which includes lower book sales of mega-selling author Colleen Hoover, whose books, which are mostly published by S&S, are seeing sales slow from last year’s sky-high figures. Paramount is scheduled to report second quarter financial results on Monday, August 7, at which executives may provide an update on the S&S sale process in addition to an update on S&S financial performance.
Industry members, particularly agents and authors, seem to be favoring that one of the investment firms turn out to be the S&S winner, since that would keep the Big 5 intact, albeit with a new S&S owner. Paramount executives are also said to be wary of the HC bid, wanting nothing to do with another government investigation of selling S&S to a major competitor. There are mixed signals about how the government would react to the sale. The size of the company that the merger of PRH and S&S would have formed was clearly a concern for judge Florence Pan, who eventually ruled against the deal, and she suggested that other bidders would emerge to buy the company. But industry consolidation was also a factor in blocking the PRH and S&S merger, and there was sympathy for the argument that publishing needs more large players, not fewer.
Even within S&S, fear of what an acquisition by a private equity firm may mean for the company has eased. During the PRH trial, which was taking place last August, a few executives outlined the cost-cutting measures PRH would take if the S&S deal was approved, testimony that was eyeopening for S&S employees. If HC becomes the winner for S&S, there is little doubt executives would look for similar ways to improve efficiencies, as it has in its acquisitions of Harlequin and Thomas Nelson. The publisher has also cut 5% of its North American workforce this year, as its financial performance has suffered in the face of declining sales and higher costs.
Among KKR and Richard Hurowitz, KKR has more familiarly with the publishing industry. Late last month, it reached an agreement to sell the audiobook publisher RBMedia for what was reported as more than $1 billion. It also owns OverDrive. Moreover, KKR media chief Richard Sarnoff is well-known in publishing circles, having served in a number of executive roles with Random House. Former PRH CEO Madeline McIntosh is known to have served as a consultant to KKR, leading to speculation that she might have some role in a KKR-owned S&S. Finally, in its deal to sell RBmedia, KKR said it would give RBmedia employees a cash payout based on their tenure with the company. Long-term employees will earn up to two times their annual salary.