- The administration said the proposed merger "would likely harm competition in the publishing industry."
- That loss of competition would undermine authors' power to obtain advances and other services crucial for their books and careers, the Department of Justice's Antitrust Division alleged in a civil lawsuit.
The Biden administration on Tuesday sued Penguin Random House and Simon & Schuster to block the two companies from completing a $2.175 billion merger that the administration said "would likely harm competition in the publishing industry."
That loss of competition would undermine authors' power to obtain advances and other services crucial for their books and careers, the Department of Justice's Antitrust Division alleged in a civil lawsuit.
"If Defendants' proposed merger is allowed to proceed, Penguin Random House would be, by far, the largest book publisher in the United States, towering over its rivals," said the legal complaint, which was filed in federal court in Washington, D.C.
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"The merger would give Penguin Random House outsized influence over who and what is published, and how much authors are paid for their work," the Justice Department alleged.
The DOJ lawsuit also named as defendants Bertelsmann and ViacomCBS, the respective parent companies of Penguin Random House and Simon & Schuster.
Viacom announced announced in November 2020 the more than $2 billion deal to sell Simon & Schuster to Penguin Random House. With that purchase, Bertelsmann's media empire would grow to encompass roughly one-third of all the books sold in the U.S.
The two publishers vowed to "vigorously" fight the lawsuit, contending in a joint statement that the publishing industry will still be "a vibrant and highly competitive environment" after the merger.
"DOJ's lawsuit is wrong on the facts, the law, and public policy," Penguin Random House's lead trial attorney Daniel Petrocelli said in the statement. "Importantly, DOJ has not found, nor does it allege, that the combination will reduce competition in the sale of books."
The antitrust lawsuit notes that Penguin Random House is already the world's largest book publisher, with Simon & Schuster being the fourth-largest publisher in the U.S.
"Together their U.S. revenues would be twice that of their next closest competitor," the DOJ said.
If allowed to go through, the agency alleged, that shift would disrupt the current balance of competition among the "Big Five" U.S. publishers, which in addition to the two defendants includes HarperCollins Publishers, Hachette Book Group and Macmillan Publishing Group.
"If consummated, this merger would likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers," the DOJ's lawsuit said.
"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."
Simon & Schuster CEO Jonathan Karp, in a memo to staff shared with CNBC by a spokesman for the publisher, said he was "committed" to fighting the lawsuit.
"For all of us, this news is unsettling: nobody likes to work in an atmosphere of uncertainty," said the memo from Karp, who lauded staff for their "ability to adapt under extreme conditions" during the coronavirus pandemic.
"Simon & Schuster has changed ownership seven times over the course of our 97-year history, and always our authors and our books have remained our principal concern, interest, and passion," Karp's memo said.
President Joe Biden in July signed a weighty executive order aimed at cracking down on anti-competitive business practices, including by urging more federal scrutiny toward "bad mergers" and "killer acquisitions," where large firms buy up smaller brands to take them out of the market.
That order was primarily aimed at the tech sector. The joint statement from Penguin Random House and Simon & Schuster argued that their merger will not prevent competition in the industry among a range of publishers, including "newer entrants like Amazon."
Amazon's rise to become the world's largest retailer has bred concerns about its impact on the publishing industry. But the DOJ's lawsuit rejects that premise, accusing Penguin Random House of planning "to embrace Amazon even more closely" after it purchases Simon & Schuster.