Judge blocks Penguin Random House takeover of Simon & Schuster

A federal judge has blocked Penguin Random House’s attempt to swallow its smaller rival, Simon & Schuster, dealing a blow to the world’s largest book publisher’s attempt to become an even bigger giant.

Late Monday, U.S. District Judge Florence Y. Pan ruled the government succeeded in its case by demonstrating the proposed merger would have anti-trust implications by likely “substantially” lessening competition “in the market for the U.S. publishing rights to anticipated top-selling books.”

Pan’s ruling hands the Biden Administration a decisive victory as it weighs whether to challenge other industry-shaping mergers.

The consolidation between the two book publishing houses would have drastically altered the industry by trimming the number of major publishing houses, known as the Big Five, to just four.

The case had been closely watched — it was the biggest antitrust trial in the publishing world in decades.

Witnesses who testified on behalf of the government’s included the legendary author, Stephen King. The bestselling writer of “The Shining’’ and “The Stand,” was publicly critical of the deal and the involvement of his longtime publisher, Simon & Schuster.

“Consolidation is bad for competition,” King said during the August antitrust trial. “That’s my understanding of the book business. The more companies there are, the better it is.”

Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division applauded Pan’s ruling.

“Today’s decision protects vital competition for books and is a victory for authors, readers, and the free exchange of ideas,” Kanter said in a statement. “The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy.”

In her order, Pan did not detail her rationale for denying the merger.

Instead, she filed a memorandum outlining her decision under seal because it contained sensitive business information. The judge gave both sides a chance to object to making public some of the information. Lawyers have until Friday to meet and confer and jointly file proposed redactions of “confidential information” and “highly confidential information” contained in the judge’s memo.

Penguin Random House said that it would immediately request an appeal to Pan’s decision.

“We strongly disagree with today’s decision, which is an unfortunate setback for readers and authors,” Penguin Random House said in a statement. “As we demonstrated throughout the trial, the Department of Justice’s focus on advances to the world’s best-paid authors instead of consumers or the intense competitiveness in the publishing sector runs contrary to its mission to ensure fair competition. We believe this merger will be pro-competitive, and we will continue to work closely with Paramount and Simon & Schuster on next steps.”

The decision dealt Simon & Schuster’s parent company Paramount Global a setback in its efforts to raise money by shedding iconic CBS-controlled assets. The company had hoped to complete the merger a year ago — before running into the regulatory headwinds.

The company (previously known as ViacomCBS) put the storied publishing house on the auction block in early 2020, just months after the merger of Viacom and CBS. The company received several offers for Simon & Schuster, including from another rival, HarperCollins, owned by News Corp.

But ViacomCBS selected he $2.18 billion offer from Bertelsmann’s Penguin Random House, even though some observers warned there could be regulatory ramifications. (ViacomCBS said then that the German conglomerate Bertelsmann had agreed to pay a termination fee if regulators were to block the deal, but did the company not disclose the size of the fee.)

The deal stunned the industry, and authors voiced their concern about the merger’s potentially negative effects. The Authors Guild pleaded with the Justice Department to stop the merger.

The publishing industry has seen much consolidation as book houses look to gain bargaining muscle when going up against online retailers such as Amazon.com. In 2016, the Hachette Book Group bought Perseus Books. Rupert Murdoch’s News Corp., which owns HarperCollins, bought romance novel publisher Harlequin in 2014, a year after Penguin and Random House came together in another blockbuster combination.

Critics of such deals worry that bigger behemoths in publishing wield increasing power over authors. A year ago, the Justice Department sued to block the deal, arguing that too much consolidation was bad for authors and, ultimately, for readers.

“The decision is also a victory for workers more broadly,” Kanter said. “It reaffirms that the antitrust laws protect competition for the acquisition of goods and services from workers.”

Staff writers Dorany Pineda and Freddy Brewster contributed to this report.