Finance

What Publishing Industry Downturn? Legendary Publisher Simon & Schuster Acquired For $1.62B

Defying an overall cooling market for books, Simon & Schuster has posted strong sales for the past two years.

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books-1163695_1920If you’re a real aficionado of this column, first of all, God bless you, you well-informed, good-looking devil you. Second, you may vaguely recall reading about the Justice Department interceding to stop publishing industry giant Penguin Random House from acquiring its competitor Simon & Schuster way back in 2021.

This was the first major antitrust action of the Biden administration. Attorney General Merrick Garland even spoke personally against the proposed merger, saying that if the deal went through, “American authors and consumers will pay the price of this anticompetitive merger — lower advances for authors and ultimately fewer books and less variety for consumers.”

Penguin Random House had no intention of letting its $2.2 billion deal fall through. The biggest of the Big Five publishing houses vigorously opposed the DOJ’s antitrust suit.

I spoke to Penguin Random House’s lead attorney Dan Petrocelli in early 2022. He was quite confident in Penguin Random House’s case. “Bringing the Simon & Schuster imprints into [Penguin Random House’s] structure will produce significant efficiencies that can lead to opportunities to sell more books, pass savings down to consumers, and increase compensation to authors,” he said.

That confidence proved to have been misplaced. Ultimately, a federal judge blocked Penguin Random House from purchasing Simon & Schuster, and there was no appeal. The deal was dead (although Penguin Random House nonetheless seemed to be on the hook for a $200 million termination fee to Paramount Global, Simon & Schuster’s parent company).

Yet, there were still plenty of interested potential buyers for Simon & Schuster. For example, another of the Big Five publishers, HarperCollins, which is owned by Rupert Murdoch’s News Corp, expressed an interest. Paramount, for its part and for some reason, still seemed determined to offload Simon & Schuster even after the Penguin Random House acquisition fell through.

Paramount has been losing money. It reported a $424 million loss for the second quarter of 2023. Simon & Schuster had no responsibility for that, however — quite the opposite. Defying an overall cooling market for books, Simon & Schuster has posted strong sales for the past two years.

Sponsored

Though it is somewhat unusual for a company to sell off one of its few profitable branches, Paramount has long insisted that Simon & Schuster does not fit in with Paramount’s emphasis on video entertainment.

Despite Paramount’s lack of enthusiasm, a profitable publisher with a 99-year history and an impressive roster of notable books and influential authors was not going to go overlooked in the marketplace for long, especially if it could be had at a relative bargain compared to the price Penguin Random House had been willing to pay. On August 7, Paramount announced that Simon & Schuster had been sold to the huge private equity firm KKR in a cash deal for $1.62 billion.

KKR has promised that Simon & Schuster will operate as a standalone entity with continued editorial independence. KKR also has indicated it is not planning any layoffs at Simon & Schuster, but will instead invest in and expand the organization.

As opposed to the scuttled Penguin Random House deal, there is unlikely to be Justice Department resistance to the KKR acquisition. KKR is not already a publishing industry rival to Simon & Schuster.

KKR will not run Simon & Schuster forever. The chair of media at KKR said the private equity firm typically holds companies for five to seven years before selling, even as no particular timeline is set at this stage for reselling Simon & Schuster. It remains to be seen, of course, whether KKR will be able to find a willing buyer that the Department of Justice has no problem with, perhaps as the year 2030 approaches.

Sponsored

Private equity does not have the greatest reputation among those at companies which have been acquired by private equity firms. Even so, there seem to have been extraordinary efforts made in announcing this deal to reassure Simon & Schuster employees and readers alike. That being the case, at least at this stage, this seems like a win-win situation.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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