German media group Bertelsmann is joining the race to buy ViacomCBS’s publishing arm Simon & Schuster, in a move that would entrench the owner of Penguin Random House as the world’s biggest book publisher.
Thomas Rabe, Bertelsmann chief executive and chairman, told the Financial Times he was “interested” in the publishing house and would be ready to bid when ViacomCBS moved ahead with its planned sale, which has been held up by the pandemic.
“We’ve been the most active player on the consolidation of the book publishing market in the last 10 years. We combined Penguin and Random House very successfully to create by far the largest book publisher in the world, actually the only global book publisher,” he said. “Given this position we would, of course, be interested in Simon & Schuster.”
Simon & Schuster is one of the top five publishers in the US and the imprint of authors such as Ernest Hemingway, Stephen King and Joseph Heller. It was one of the prize media assets amassed by the late Sumner Redstone but one that ViacomCBS no longer sees as “part of its core strategy” of television, production and streaming.
Bob Bakish, ViacomCBS chief executive, said in May that Simon & Schuster was “ready for divestiture when the market stabilises”. ViacomCBS declined on Tuesday to comment on the sale.
Its publishing division generated revenues of $814m in 2019, with pre-tax operating profits of $143m. Prior to the crisis, media reports suggested ViacomCBS was seeking about $1.2bn for the business. The sale process is expected to start in September.
Mr Rabe expects “a wave of [media] consolidation” in the aftermath of the crisis, and wants Bertelsmann to buttress its position against global tech platforms by leading dealmaking across sectors such as television and book publishing.
Bertelsmann last year agreed to buy Pearson’s remaining 25 per cent stake in Penguin for £530m, bringing together classic Penguin titles such as George Orwell’s 1984 with Random House’s bestseller Fifty Shades of Grey.
Despite Penguin’s pre-eminent position in the global market, where it accounts for more than a quarter of book sales, Mr Rabe played down potential antitrust concerns over a potential deal. As a rule of thumb, competition authorities tend to raise serious doubts over a combined market share in excess of 40 per cent, but much depends on how narrowly markets are defined.
“We looked at this and we don’t think it is an issue,” Mr Rabe said. “If you look at the market holistically, particularly the strength of Amazon, and it includes self-publishing and the like, we don’t think this will be an obstacle.”
The expression of interest in Simon & Schuster came as Bertelsmann released its half-year results for 2020, with relatively stable revenues from book publishing and music offsetting the impact of an advertising slump on its television division.
Revenues fell 8.9 per cent to €7.8bn, while pre-tax profits were down 5.4 per cent to €621m in the six months to June.
Penguin is Bertelsmann’s second-biggest division and generated revenue of €1.6bn in the period, broadly the same as a year earlier, with operating profits of €209m.
Mr Rabe said the division was “growing in importance for Bertelsmann”. “The business model is robust, the business is resilient and profitable. It is a good cultural fit,” he added. “I don’t want to talk for ViacomCBS, I don’t think they are selling the business because they don’t believe in it, I think they are selling it because they want to focus on other businesses.”