Penguin books owner Bertelsmann buys US publisher Simon & Schuster

Rival bidder News Corp argues German media group is 'buying market dominance' through $2bn-plus deal

The London headquarters of publisher Random House. German media group Bertelsmann is buying Simon & Schuster for almost $2.2bn after snapping up Penguin Random House last year. AFP

German media group Bertelsmann has agreed to purchase publisher Simon & Schuster for almost $2.2 billion in cash from ViacomCBS, strengthening its presence in the United States.

Bertelsmann outbid Rupert Murdoch's News Corp in a contest for the publisher of Dan Brown, Hillary Clinton and Stephen King, which Viacom put on the block earlier this year.

The deal represents the second major move in chief executive Thomas Rabe's drive to consolidate Bertelsmann as the world's biggest bookseller, after the 185-year-old publisher took full control of Penguin Random House less than a year ago.

"We are building our position as one of the leading creative content companies in the United States," Mr Rabe said on Wednesday of the move deeper into Bertelsmann's second-largest market.

"I'm convinced that this a good day both for book publishing and for authors."

The acquisition of Simon & Schuster, which reported revenue of $814 million in 2019, is profitable and employs 1,500 staff, is expected to close in 2021 subject to US antitrust approval.

The merged entity would have a US market share of less than 20 per cent, making the transaction "approvable", Rabe told reporters.

However, News Corp chief executive Robert Thomson criticised the deal, which he said had an "anti-market logic".

"Bertelsmann is not just buying a book publisher, but buying market dominance as a book behemoth. Distributors, retailers, authors and readers would be paying for this proposed deal for a very long time to come," Mr Thomson added.

Jonathan Karp and Dennis Eulau will stay on to run Simon & Schuster under the umbrella of the far larger Penguin Random House. Combining printing, sales and distribution would deliver significant synergies, Mr Rabe said.

Size is important in publishing as bestseller lists become dominated by a handful of blockbusters – such as Penguin Random House's edition of ex-US President Barack Obama's memoir A Promised Land.

But overall US book sales have been growing by a mere 1 per cent a year, according to the American Association of Publishers, as readers are distracted by social media and other online formats.

Mr Rabe described books as the "past, present and future" of Bertelsmann but also highlighted the US publishing deal's significance for its digital content as people turn to e-books or listen to narrated 'talking' books.

Founded in 1835 as a publisher of theological texts, Bertelsmann is a private conglomerate spanning magazine, educational and music publishing and controls European TV group RTL.

Mr Rabe is restructuring to reduce its exposure to declining areas such as printing, has merged its Arvato CRM customer services unit and made a string of smaller technology bets.

The lack of its own public equity to serve as an acquisition 'currency' has constrained Bertelsmann's ability to chase big deals, even as tech giants led by Facebook and Alphabet's Google suck up more ad dollars.

Yet Mr Rabe was able to pay cash after this year building a war chest of €4.3bn ($5.1bn) in liquid funds.

Mr Rabe pulled this off by retrenching during the coronavirus crisis, and selling other investments and property. And, while Bertelsmann's focus is mainly on organic growth, it has the capacity to do further deals, he added.

ViacomCBS, which was advised by LionTree Advisors and Shearman & Sterling, said it would plough the sale proceeds into its streaming operations, fund its dividend and repay debt.