Paramount Nears Announcement for Simon & Schuster Deal

The Biden administration opposed the merger deal on antitrust grounds, citing concerns about its impact on some authors.

on Aug 07, 2023

Paramount Nears Announcement for Simon & Schuster Deal | Frontlist

Paramount is getting ready to make an announcement about an agreement to sell Simon & Schuster, which is considered one of the leading publishers in the United States, to KKR, a private-equity company. This marks the end of an effort that has spanned several years to sell the publishing company.

According to three anonymous sources familiar with the matter, a deal to acquire Simon & Schuster for approximately $1.62 billion could be announced as early as Monday. However, one of the sources cautioned that the deal is not yet final and could potentially collapse. Investors will likely be looking for an update on the publisher's sale during Paramount's earnings report on Monday.

The recent agreement can transform the book publishing field, where Simon & Schuster holds a prominent position in the country. Additionally, it may bring a sense of resolution to the staff and spectators of the industry who have followed the publisher's search for a new proprietor with unease over the years.

Last year, Paramount decided to sell Simon & Schuster. After nine months, they announced that Penguin Random House had acquired the company for $2.18 billion. The sale was expected due to the trend of major publishers merging with smaller competitors, and it was anticipated to be approved by regulatory bodies.

The Biden administration opposed the merger deal on antitrust grounds, citing concerns about its impact on some authors. This was especially true since Penguin Random House is already the largest publisher in the country. As a result, a judge ruled in favor of the government and blocked the merger. In addition to the millions spent on legal fees, Penguin Random House was obligated to pay a $200 million termination fee to Paramount.

Over the last three years, there has been concern among some publishing executives that if Simon & Schuster were purchased by a private equity firm, it could result in staff reductions and a decrease in the number of book titles published. However, private equity has been involved in the book industry before. For instance, KKR acquired OverDrive, a digital reading platform for libraries and schools, in 2020. Recently, KKR announced that it plans to sell RBmedia, an audiobook publisher it acquired in 2018, to H.I.G. Capital, an investment firm based in Miami, for over $1 billion. Additionally, Barnes & Noble was bought by investment firm Elliott Advisors in 2019 and has experienced a revival under their leadership.

HarperCollins, the second-largest publisher in the country and owned by News Corp, was another bidder in the running. However, if Paramount had struck a deal with them, it could have led to regulatory challenges. Even though HarperCollins and Simon & Schuster combined would still be smaller than Penguin Random House, who currently has the largest market share at 21%, HarperCollins has nearly 11% and Simon & Schuster has 7% of the market for print books in the United States according to Circana BookScan.

Last fall, Judge Florence Pan of the United States District Court for the District of Columbia filed an opinion in which she ruled against Penguin Random House. She suggested that Simon & Schuster could be acquired by a smaller publishing company, but selling to another publisher still posed a risk.

KKR is paying less than what was originally agreed upon by Penguin Random House for the acquisition of Simon & Schuster. However, the difference in payment is being partly compensated by the cash generated by Simon & Schuster over the last two years and the termination fee paid to Paramount.

Next year, Simon & Schuster will celebrate its 100th anniversary. The company was started by Richard L. Simon and M. Lincoln Schuster, and they began by publishing crossword puzzles. Presently, Simon & Schuster publishes over 2,000 titles annually, comprising political blockbusters like Mary L. Trump's "Too Much and Never Enough" and novels such as Colleen Hoover's "It Ends With Us," which has impressively spent 111 weeks on the New York Times best-seller list.

Simon & Schuster has been performing well despite the failure of the previous deal. During the first quarter of 2023, the company's sales increased to $258 million, representing a 19 percent growth from the previous year. In contrast, other major publishers experienced disappointing results during the same period.