PRH brands lawsuit over S&S deal 'wrong on facts, law and public policy'

Penguin Random House (PRH) has insisted a lawsuit brought by the US Department of Justice seeking to block its owner Bertelsmann's $2.2bn deal for Simon & Schuster (S&S) is “wrong on the facts, the law, and public policy”.

On 2nd November, the DoJ filed a civil antitrust lawsuit in the United States District Court for the District of Columbia, claiming the deal to buy S&S from owner ViacomCBS would allow PRH to “exert outsized influence over which books are published in the United States and how much authors are paid for their work”. PRH and S&S have vowed to fight the case "vigorously".

Markus Dohle (pictured), c.e.o. of Penguin Random House, said: “Since ViacomCBS announced that it was contemplating selling S&S, we at Penguin Random House knew S&S would have its best home with us—a place that would be committed to carrying forward its storied legacy. We continue to firmly believe this. Our goal is for the new combined company to be truly greater than the sum of its parts, and our focus is to grow our community of distinct imprints that will operate independently and autonomously and will continue to compete vigorously among themselves and with outside competitors, a process that best serves the objective that every author finds the right editor and the best imprint for their work to develop and flourish.” 

Daniel Petrocelli, vice-chair of O’Melveny & Meyers and PRH’s lead trial attorney, added: “DoJ’s lawsuit is wrong on the facts, the law, and public policy. Importantly, DoJ has not found, nor does it allege, that the combination will reduce competition in the sale of books. The publishing industry is strong and vibrant and has seen strong growth at all levels. We are confident that the robust and competitive landscape that exists will ensure a decision that the acquisition will promote, not harm, competition.”

PRH claimed there was “robust” competition for advances among publishers and the DoJ had failed to account for royalties in its market analysis. It also stated the transaction was driven by “backend cost-savings” that would allow PRH to improve efficiency in distribution of S&S titles, rather than leading to a reduction in books or amounts paid to acquire them. Imprints from the two companies would be kept as separate external bidders in auctions, it said.

The company also pointed to the 2013 Penguin and Random House merger, saying that deal saw author advances as a share of the combined company’s revenue increase and editorial staff grow.

In a joint statement, PRH and S&S said: “This is a pro-consumer, pro-author, and pro-bookseller transaction, which will allow increased investment in the publishing programmes of both S&S and PRH. 

“The transaction will bring PRH’s superior order fulfillment services to S&S’ titles, benefitting consumers by making it easier to discover new titles and less likely that books will be out of stock, particularly at local retailers. Beyond the benefits to consumers, PRH’s reach into independent bookstores and specialty markets will boost the sales of S&S titles, benefitting both authors and retailers. 

"The publishing industry is—and following this transaction will remain—a vibrant and highly competitive environment. PRH and S&S compete with many other publishers including large trade publishers, newer entrants like Amazon, and a range of mid-size and smaller publishers all capable of competing for future titles from established and emerging authors. 

"Blocking the transaction would harm the very authors DoJ purports to protect. We will fight this lawsuit vigorously and look forward to PRH serving as the steward for this storied publishing house in the years to come.”

In a note to staff, S&S president and c.e.o. and Jonathan Karp reiterated the DoJ had not claimed the acquisition would harm competition in the sale of books and said S&S would do all it could to help PRH fight the case.

He said: “For all of us, this news is unsettling: nobody likes to work in an atmosphere of uncertainty. But over the last 18 months we have proven our ability to perform at the highest possible levels on behalf of our authors and their books. Our admirable performance during this period is a testament to your dedication, resilience, and ability to adapt under extreme conditions. Your hard work is greatly appreciated.”

Karp added: “We are committed to working together with PRH to fight this lawsuit. I expect that there will be further developments along the way as this process unfolds.”