The government’s bid to block Penguin Random House’s acquisition of rival Big Five publisher Simon & Schuster gets underway today in Washington, D.C., today, with the case expected to run about three weeks. Meanwhile, filings made public late on July 29 shed light on a lingering pre-trial evidence dispute that could impact PRH’s defense.
The dispute involves PRH’s claims that its acquisition of Simon & Schuster would create “cognizable merger-specific efficiencies.” But according to court filings, PRH’s expert witness, Edward Snyder, conceded in his testimony he did not seek to independently verify the numbers he used in forming his opinion on such efficiencies, which were drawn from a report by PRH’s head of global mergers Manuel Sansigre, and PRH U.S. president and COO Nihar Malaviya. DOJ lawyers argue that the law requires data used by expert witnesses be verified. And because Snyder did not verify the numbers, the government is seeking to bar parts of Snyder’s testimony “in order to facilitate a motion…seeking judgment as a matter of law on the issue of efficiencies.”
In a brief filed last Friday, however, PRH lawyers strongly disputed the government’s reading of the law and the case history, arguing that numbers used by expert witnesses must only be “verifiable” not verified by an independent expert, adding that the court, after hearing testimony, would see the numbers used by PRH’s expert were sound. Furthermore, PRH attorneys argue that the government “should not be allowed to truncate and remove efficiencies from the rest of the trial proceedings.”
At a July 25 hearing, Judge Florence Pan expressed skepticism of PRH’s argument, suggesting that it should not fall to her have to verify the numbers underlying PRH’s expert testimony.
“If you have the burden, why is it that I have to...verify this? Why isn't it that you didn't have an expert do so? Why didn't Dr. Snyder verify this? I guess that's the question,” Pan told PRH lawyers at the hearing, adding that she was “a little put off by the idea that I'm the one who's supposed to be verifying here when I don't have expertise in this.”
But saying the matter was a “consequential” issue, Pan crafted a compromise. She denied the government’s motion—for the time being—in favor of having PRH witnesses address the verifiability issues ahead of their testimony at trial.
“I will say that my review of the expert reports and the evidence on this leaves me a little skeptical,” Pan said. “But I am willing to hear the testimony from Dr. Snyder and Mr. Sansigre to figure out if this is verifiable. And I'm still interested in, like, who's supposed to do the verifying. I'm not convinced that it should be me, but I'm willing to hear more on that.”
On November 25, 2020 Bertelsmann, the parent company of Penguin Random House, emerged as the winning bidder for Simon & Schuster from ViacomCBS for $2.175 billion. On November 2, 2021, the U.S. Department of Justice sued to block the acquisition.
In final briefs filed July 24, attorneys for both sides outlined their arguments for trial.
“Penguin Random House’s proposed acquisition of Simon & Schuster would further entrench the largest publishing giant in the United States (and the world) and give the merged company control of nearly half of the market to acquire anticipated top-selling books from authors,” the DOJ’s pre-trial brief states. If allowed to proceed, the brief state, “the proposed transaction would eliminate competition between two of the last remaining major publishers” likely resulting in "authors being paid less for their efforts and fewer authors being able to earn a living from writing.”
In their brief, PRH attorneys counter that the deal will create “efficiencies that will enable the combined entity to make better offers to more authors,” and will “incentivize other publishers to compete harder to acquire the books they, too, need to win sales among consumers,” a point PRH lead attorney Daniel Petrocelli emphasized in a public statement. "The Department of Justice’s lawsuit misunderstands that competitive dynamic and many others. As trial will show, this acquisition will benefit readers, booksellers, and authors alike.”