Penguin Random House and Simon & Schuster ditch $2.2B merger deal

Penguin Random House, the world's largest book publisher, and rival Simon & Schuster have scrapped a $2.2 billion US($2.9 billion Cdn) deal to merge, Penguin owner Bertelsmann said in a statement.

Bertelsmann, a German media group which owns Penguin, initially said it would appeal a U.S. judge's decision that said its purchase of Simon & Schuster would be illegal because it would hit authors' pay.

But Bertelsmann said in a statement on Monday that it "will advance the growth of its global book publishing business without the previously planned merger of Penguin Random House and Simon & Schuster."

The U.S. Justice Department filed a lawsuit aimed at stopping the deal in November 2021.

In hearings held in August, the U.S. government argued that the largest five publishers control 90 per centof the market, and a combined Penguin and Simon & Schuster would control nearly half of the market for publishing rights to blockbuster books, while its nearest competitors would be less than half its size.

The top five publishers are Penguin Random House, HarperCollins, Macmillan, Simon & Schuster and Hachette, with Walt Disney Co and Amazon.com Inc also in the market. HarperCollins is owned by News Corp.

Unlike most merger fights, which focus on what consumers pay, the Biden administration argued the deal should be stopped because it would lead to less competition for blockbuster books and lower advances for authors who earn $250,000 or more.

The Justice Department did not immediately respond to a request for comment.

Penguin to pay $200Mtermination fee

Reuters reported on Sunday that Bertelsmann was unable to convince Paramount Global, Simon & Schuster's owner, to extend their deal agreement and appeal the judge's decision.

Judge Florence Pan of the U.S. District Court for the District of Columbia ruled on Oct. 31 that the Justice Department had shown the deal could substantially lessen competition "in the market for the U.S. publishing rights to anticipated top-selling books."

With the deal's dissolution, Penguin will pay a $200 million termination fee to Paramount.

Paramount said on Monday that Simon & Schuster was a "non-core asset" to Paramount. "It is not video-based and therefore does not fit strategically within Paramount's broader portfolio," the company said in a filing on the deal's termination.

Penguin writers include cookbook author Ina Garten and novelists Zadie Smith and Danielle Steel, while Simon & Schuster publishes Stephen King, Jennifer Weiner and Hillary Rodham Clinton, among others.