Why Will KKR Be a Good Buyer for Simon & Schuster When Penguin Random House Was Not?

Simon & Schuster has a new buyer, and the winning bid came from KKR, a private equity firm with a net worth of $67.67 billion. Simon & Schuster was practically on sale, since KKR paid $560 million less than Penguin Random House (PRH) attempted to pay for it last year. But the US Department of Justice blocked that sale over antitrust concerns. Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division summed up the government’s conclusions at the time, saying, “The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy.”

            As a long-time publishing professional, I watched the trial and read the transcripts of the PRH case. It was clear that the Department of Justice lawyers did not understand book publishing. It’s a nonsensical business model, to be sure, akin to placing bets you’re more likely to lose than not. PRH’s effort to purchase Simon & Schuster would have contributed to the consolidation of big publishing, but consider that there are three major phone companies and three major networks. If publishing had consolidated, we still would have had the Big Four. Lost in the case was any conversation about the thriving world of independent publishing that exists outside of the current Big Five (PRH, Simon & Schuster, HaperCollins, Hachette, and Macmillan), of which I’m a proud member as the publisher of an independent press, nor the fact that the authors who stood to lose money or make less money in the context of this proposed merger were the ones already getting hyperinflated advances, money the publishers are unlikely to ever recoup. 

            Fast forward and a now private equity firm will own the second biggest publisher in the US and it’s unlikely the Department of Justice will step forward to do anything this time around. It’s true, KKR has a stake in other publishing entities, so they’re not new to the industry. That said, they are amassing a kind of wealth that makes them competitive with nation states, with valuations larger than many country’s GDPs. KKR, by all accounts, has worked hard to clean up its image. A 2019 Forbes article, “Gentlemen at the Gate,” spills a lot of convincing words explaining the company’s shift from “slash and burn” to “buy and build.” But we should continue to be concerned when private equity firms buy companies, and particularly ones as culturally significant as a major book publisher. A 2020 Harvard Business School report, “Do Private Equity Buyouts Get a Bad Rap?” concluded that “fears persist that private equity acquires companies for reasons that do not benefit society: asset stripping, short-term profit at the expense of workers, and long-term stability.” There are countless stories about how private equity dismembers the companies it buys. Two books released this year, Plunder: Private Equity’s Plan to Pillage America, by Brendan Ballou, and These Are the Plunderers: How Private Equity Runs—and Wrecks—America, by Gretchen Morgenson and Joshua Rosner, share how these firms, KKR among them, “buy up companies using very little of their own money, load the companies with debt, and then squeeze them for profits.” These buyouts result in worse salaries for employees and line the companies’ pockets, and often result in downsizing that’s always justified as cost-saving measures.

            I have been in book publishing for too many years to shed tears over the next merger or buyout. I was a young editor at Seal Press in 2007 when The Perseus Books Group purchased our parent company, Avalon Books. One of my authors told me at the time it would be “death by one thousand cuts.” This many years later, Seal Press is part of Hachette and bears little resemblance to the indie publisher I once worked for. Yes, publishers change their identities, and these mergers and buyouts impact who gets published, how much authors get paid, and also, importantly, whose voices are most amplified. 

            Very few companies could have afforded Simon & Schuster. People pleased with this outcome might argue that it’s better to have an American buyer (since PHR is owned by a German firm and Hachette is headquartered in France). Certain segments of the industry are relieved that the Big Five will remain intact. I take issue with the government picking and choosing what it will block and how it regulates. If antitrust is a priority, why not regulating private equity? We know the answer—power and money. Still, it’s worth keeping tabs on what’s happening here in book publishing—which is that we have a situation where the government is complicit in buoying and growing of companies that are actively creating wealth disparity. To me, this is how we go about impoverishing democracy.