Paramount scraps deal to sell Simon & Schuster to Penguin after weeks after judge rejected merger

From CNBC:

Paramount Global said Monday it scrapped its $2.2 billion deal to sell book publisher Simon & Schuster to rival Penguin Random House, weeks after a federal judge rejected the merger.

Penguin, which is owned by German media conglomerate Bertelsmann, said it still believes Simon & Schuster is a good fit for its business, but that it accepted Paramount’s decision.

“We believe the judge’s ruling is wrong and planned to appeal the decision, confident we could make a compelling and persuasive argument to reverse the lower court ruling on appeal,” Penguin said in a statement Monday afternoon. “However, we have to accept Paramount’s decision not to move forward.”

Paramount’s decision to pull the plug on the deal came more than a year after the Justice Department sued to block the deal, saying it would hurt competition for books in the publishing world. On Halloween, after a trial that included testimony from bestselling horror author Stephen King, U.S. District Court Judge Florence Y. Pan on Halloween ruled against the deal, delivering a major victory for the Biden administration’s antitrust agenda.

King, who writes books for Simon & Schuster, said he was “delighted” by the ruling. “The proposed merger was never about readers and writers; it was about preserving (and growing) PRH’s market share. In other words: $$$,” he tweeted.

In its announcement Monday, Paramount said Penguin is on the hook for a $200 million termination fee.

Paramount also indicated that it would still seek to unload Simon & Schuster.

Link to the rest at CNBC and thanks to J. for the tip.

Commentary:

Part 1: Yes, this is the actual CNBC headline. PG checked it on Grammarly, expecting a mild digital uproar over the two “afters”, but Grammarly simply suggested that “judge” and “merger” needed appropriate articles.

Part 2: PG wonders if either side of this deal has decided to move to a different law firm, at least for antitrust matters. In PG’s enormously outsized opinion, this deal screamed of antitrust problems from the first time he read about it and the screaming never stopped until the District Judge put an arrow in its heart.

Of course, there’s no appeal because each party finally consulted adult antitrust lawyers, who likely delivered the news that the case was a loser up and down the legal line and had been since the start.

Part 3: If PG had a financial interest in Penguin, PG would scream bloody murder over a $200 million termination fee. Which officer of Penguin approved this provision? Did the board of directors actually vote to put Penguin on the hook for a busted deal that was dodgy from the very beginning?

Part 4: PG assumes that someone at Bertelsmann, the sole owner of Penguin, approved this transaction. Surely, someone in Gütersloh or several someones in this small German city will be sending out the German equivalent to resumes, résumés or resumés to the entire world.

(PG just learned that the German word for this sort of document is Lebenslauf. Apparently Lebenslauf doesn’t have versions with accent marks.)

Part 5: How are the Mohn family and the managers of various Mohn stiftungs that really own and control Bertlesmann feeling these days? PG doesn’t know whether $200 million is pocket change for these folks or not. He hasn’t looked up the German translation for “You’re Fired!” but expect there is an equivalent term. (He did learn that the German term for “Hit the road!” is Sich auf den Weg machen! or simply, Losfahren!)

(PG apologizes if there is supposed to be an upside-down exclamation point anywhere in all this German. He wasn’t exactly certain how to look that up.)

3 thoughts on “Paramount scraps deal to sell Simon & Schuster to Penguin after weeks after judge rejected merger”

  1. German doesn’t use upside-down exclamation points (just seemingly upside-down opening quotation marks). Spanish does.

    One wonders, however, if the termination fee is covered in whole or in part by Betriebsunterbrechungsversicherung. One cannot imagine that one’s examination of documentation involving a past failed acquisition by one o the parties here indicates that such coverage was actually available here, or that there was no securities-hedging strategy employed as is typical in acquisitions in the finance industry.

    One might also be educated by comparing the termination fee to the purported/reported free cash flow of either party for FY 2019-20. Or if not educated, perhaps infuriated.

    Reply
    • Well, the reported profit for the year prior to the “sale” was $143M off $814M in gross.

      https://www.publishersweekly.com/pw/by-topic/industry-news/financial-reporting/article/82477-sales-earnings-down-in-2019-at-s-s.html

      By contrast, TOP GUN: MAVERICK this year cost $150M to make and grossed $1.5B in theaters alone. Just one of several successful movies and series they’ve produced this year. So the S&S termination fee should just about pay for the next Tom Cruise movie.

      Paramount is betting everything on video. Paramount+ only has 40M subscribers at $5 a month but that adds up to $2.4B gross. There is a lot more money in video but it is one business where you have to spend big to make bigger. And Paramount is short on cash so they’re selling everything that will keep them afloat until (they hope) Paramount+ gets big enough to be long term profitable.

      In March 2020 when Viacom announced they were ditching S&S they were hoping for $1.2B so the penguin offer was a billion more and in fact $400M more that VIACOM got from selling off CBS Studio facilities to a real estate group.

      They *really* need the money. Not sure who would want S&S enough to pay even $1B for their catalog. Maybe they ought to sell the catalog and spin off and IPO the rest (Ted Turner did that with MGM) to see where it leaves King and the naysayers. In the likely ’23-25 pbook environment those prospects don’t look much better.

      Then again, Paramount itself isn’t likely to survive till ’25 themselves.

      Reply

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