Dhe business could have catapulted Bertelsmann into completely new dimensions in the book market – but the plan to buy the American publishing company Simon & Schuster for 2.2 billion dollars has now finally collapsed. First, three weeks ago, the German media group received a red card from the Washington District Court, which prohibited the takeover for antitrust reasons. The Germans then said they were determined to continue fighting and announced an urgent appeal.
But now the takeover object itself has put an end to the project. Paramount, the owner of Simon & Schuster, has allowed an agreed two-year deadline for the sale to expire without extending it, despite requests from Bertelsmann. The company announced on Monday that it had terminated the purchase agreement in accordance with the agreed terms.
This means that an action by Bertelsmann against the cartel decision is now de facto irrelevant, and the Germans gave up. In a statement, they said they wanted to drive future growth in the division “without Simon & Schuster” and that they would not file a lawsuit.
Bertelsmann Group is considered the largest book publisher
The family-owned Bertelsmann Group, with its subsidiary Penguin Random House, is already the largest book publisher in the world. He leads a group of five publishers known in the US as the “Big Five”, which includes Simon & Schuster. With the acquisition, he could have strengthened his position considerably.
CEO Thomas Rabe, who has been leading the group for ten years, sees the division as one of his five strategic priorities. “The book business has been an identity for Bertelsmann for 187 years. Nothing will change about that in the future,” he said in a statement on Monday. His plan for the Gütersloh-based group envisages annual growth of 5 to 10 percent, organically but also through acquisitions. To this end, 5 to 7 billion euros are to be invested via the so-called “boost plan”. “Penguin Random House will also have significant investment funds available,” emphasizes Rabe.
When the takeover was announced two years ago, the Bertelsmann boss was optimistic that he would get antitrust approval for the project. But just under a year later, the Justice Department filed a competition lawsuit. It took a somewhat unorthodox approach and did not use the traditional cartel argument that the takeover would result in higher prices for consumers.
Instead, the authority saw the disadvantage primarily for book authors and said they would be paid lower advances after the merger because publishers would no longer have to fight as hard for the book rights. She described the scenario as a monopsony in which there is one dominant buyer as opposed to a monopoly with one dominant seller. Consumers would be harmed in an indirect way. Authors didn’t write as much anymore because of lower pay, and that reduced the choice of books.
The failed takeover attempt cost Bertelsmann a lot of money
Antitrust cases involving monopsony have been relatively rare, which is why the chances of success of the Justice Department’s lawsuit were considered uncertain. However, the authorities were able to convince the competent judge with their arguments. She specifically said when filing the lawsuit that antitrust laws are there to protect both buyers and sellers. And when US President Joe Biden issued an executive order last year to encourage competition in the American economy, it said it was intended to combat the harmful effects of both monopoly and monopsony.
The failed takeover attempt cost Bertelsmann a lot of money – not only because there is a lot of work in the process, which has now been going on for two years, especially by lawyers, but also because a “dissolution fee” of 200 million dollars is due, which Bertelsmann pays to Paramount because the sale was not completed within the agreed period of two years. In their statement, the Americans expressly pointed out that they were entitled to this money.
The book division recently contributed a good fifth to sales
It is quite possible that Bertelsmann is now looking for other acquisition targets, but after the cartel defeat it will be difficult to buy another representative of the “Big Five”. Conversely, there is speculation that Paramount has long since found other potential buyers for Simon & Schuster, especially since Bertelsmann was not the first candidate two years ago. For example, Harper Collins and Hachette, who also belong to the “Big Five”, are considered possible buyers. Their top managers also expressed an interest in taking over Simon & Schuster during the cartel process if Bertelsmann did not get a chance.
The books division has recently contributed a good fifth to the turnover of Bertelsmann, whose most important revenue pillar is RTL. With four billion euros in sales, Penguin Random House generated earnings of 775 million euros last year. This year, the development was not quite as dynamic at first, but Rabe justified this with the release date of major titles.
Potential bestsellers include Michelle Obama’s recently published book The Light Within, after the former First Lady’s autobiography, published three years ago, sold a total of 17 million copies. Penguin Random House has 300 book publishers in 20 countries that bring 16,000 new publications to market every year.