Justice Department sues to stop Penguin Random House’s purchase of Simon & Schuster

The Justice Department is suing to block Penguin Random House’s proposed acquisition of Simon & Schuster, arguing that the combination of the two book business giants “would likely harm competition in the publishing industry.”

Tuesday’s complaint in United States District Court is one of the first major antitrust actions by the Biden administration.

The publishers said they are prepared to defend the deal in court, calling it “a pro-consumer, pro-author, and pro-book seller transaction.”

Penguin Random House and Simon & Schuster are two members of the “Big Five,” the industry’s term for the five biggest publishers in the United States.

In a court filing on Tuesday, DOJ lawyers said the companies should not be allowed to combine because it “would give Penguin Random House outsized influence over who and what is published, and how much authors are paid for their work.”

The challenge emphasized the potential harm for authors since the merger would reduce the number of potential bidders for highly-anticipated books.

“Post-merger, the two largest publishers would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage,” the DOJ said.

The legal challenge quotes from internal emails from executives at both companies to bolster the case. One email, attributed to a “senior Penguin Random House executive,” said “I would not want to be a big author at Simon & Schuster now,” a reference the DOJ used to underscore its argument about the merger’s harmful effect on bidding.

Simon & Schuster’s parent, ViacomCBS (VIACA), and Penguin Random House, a subsidiary of German media giant Bertelsmann, announced the $2.175 billion deal last November.

Since then, the two companies have been trying to win regulatory approval in the United States and other countries.

Other publishing houses have argued that the merger would be anticompetitive. Robert Thomson, CEO of rival HarperCollins’ parent company News Corp, said Bertelsmann was “buying market dominance as a book behemoth” and denounced what he called the “anti-market logic.”

The Justice Department appears to agree. Monday’s filing says the merger would eliminate competition; likely cause “author income to be less than it would be otherwise;” likely cause “a reduction in the quantity and variety of books published by the merged firm;” and “likely reduce quality, service, choice, and innovation.”

Penguin Random House said it has retained Daniel Petrocelli, the same attorney who defended AT&T and Time Warner when the DOJ sued to block that deal in 2017. AT&T prevailed and took control of CNN and the rest of Time Warner’s assets.

Petrocelli said Tuesday that the DOJ’s case against the publishing houses “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,” Petrocelli said. “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.”