In the newspaper world, a sale to private equity tends to feel like a funeral, with ink-stained wretches lamenting the slow and painful death of their industry. In the adjacent world of book publishing, the news this week that KKR would acquire Simon & Schuster from Paramount Global hardly seemed so grim.
“In the spring of 2023, we began a series of fascinating and stimulating conversations with members of KKR’s Media and Entertainment industry team about every aspect of our business, reflective of their keen interest in acquiring our company. All of us from Simon & Schuster who participated came away from those conversations impressed by KKR’s acumen, as well as their team’s desire to help our business grow and thrive in the future,” S&S boss Jonathan Karp wrote in a company-wide email Monday afternoon, right as the sale was announced ahead of Paramount Global’s latest quarterly earnings call. “That commitment to growth is one of the reasons I’m so glad KKR will be our next owner.”
Karp, who is one of the most successful people in publishing, has good reason to celebrate on a personal level. If S&S had gone to, say, HarperCollins, it’s possible he might have found himself the odd man out. In either case, of course Karp was going to convey an upbeat assessment to his 1,600-plus worker bees, who have essentially spent the past two and a half years in limbo. It began in late 2020, when S&S’s parent company—then known as ViacomCBS—struck a deal for the publisher to be sold to Penguin Random House, the biggest of the Big Five publishers. The Biden administration challenged the deal, leading to a protracted legal battle between PRH and a consolidation-averse Department of Justice. The showdown culminated last fall when a federal judge ruled in favor of the DOJ, kiboshing the acquisition once and for all and sending Paramount Global back to the drawing board. In this sense, anyone employed by S&S is probably just relieved to finally know who their new overlords are going to be.
Still, there’s reason to believe that Karp’s happy talk isn’t just hot air. Exhibit A: the involvement of Richard Sarnoff, who leads KKR’s media and entertainment team. Sure, Sarnoff’s undergraduate art history degree from Princeton suggests he’s a cultured fellow and not just some soulless finance shark. But it’s a different notch on his résumé that is most germane to the matter at hand: Sarnoff himself is a former book-publishing executive, serving in the early 2000s as chief financial officer of, ironically enough, Random House. (He also chaired the Association of American Publishers during that time.)
As far as I can tell, the man has a good rep. Sources in the know described him as “very smart,” a “great guy,” and a “book person.” Karp, who overlapped with Sarnoff at Random House (where Karp eventually rose to editor in chief) was similarly effusive in his company note: “I have known and admired…Richard Sarnoff for two decades…. Richard understands the nuances of the book business as well as anyone I know.”
Sarnoff told the Associated Press that no layoffs are planned, and in his own boilerplate message about the sale, he declared, “We see a compelling opportunity to help Simon & Schuster become an even stronger partner to literary talent by investing in the expansion of the company’s capabilities and distribution networks across mediums and markets while maintaining its 99-year legacy of editorial independence.”
The icing on the cake is that the S&S crew will get an ownership stake once the sale closes. (And it is expected to close this time, since KKR ownership won’t raise the kind of antitrust alarms that a rival major publisher would.) For context, as part of KKR’s flip of the audiobook company RBmedia, now being offloaded to the investment firm H.I.G. Capital, the average payout once the ink dries is expected to be a year’s pay or a minimum of $50,000. Here’s Karp again: “Of all the prospective buyers we spoke to—and there were a lot of them—KKR was the only one that discussed its plans to support Simon & Schuster in creating an equity ownership program to provide all of our employees with the opportunity to participate in the benefits of ownership after the transaction closes.”
The vibe I’m picking up on from inside S&S is that this deal, brokered by Aryeh Bourkoff’s LionTree, has been met with both a curiosity about what the future holds and a sense that KKR’s ownership is perhaps the best outcome. This jibes with reactions I’ve gotten from the outside. “If there’s any publishing house that can handle the pressure of a private-equity owner, it’s S&S. The PRH offer was too good to be true. This is the reality check,” said a veteran editor at a rival house. Adding a dash of caution, this source continued: “S&S is known for being the leanest, most bottom-line-driven publisher in the business. How much leaner can they get? We’re about to find out. Atria will probably thrive, but [fellow imprints] Scribner and Avid Reader could be facing some serious belt-tightening.”
I asked someone with experience in both book publishing and finance to give me a sense of KKR’s rap on a scale of one to Alden Global Capital, the fearsome and secretive vampire hedge fund that has infamously gutted newsrooms across the country: “Classy. Long-term investors. Pioneers of the [investment] industry. They’ve made mistakes”—most famously the leveraged buyout of RJR Nabisco, which you can read about in the Bryan Burrough classic Barbarians at the Gate—“but they are not like Alden.” A well-connected publishing insider concurred: “KKR is not the devil.”
Aside from KKR, one of the other suitors was indeed News Corp’s HarperCollins (that’s my publisher, for the record), which lost out to PRH in the previous go-round. HarperCollins commands a smaller share of the market than PRH does, so an HC-S&S mash-up might not have faced the same regulatory scrutiny. Still, it stands to reason that Paramount Global didn’t want to take any chances—a source familiar with the sale process said the antitrust component was “definitely a consideration.” Another source familiar with the sale told me, “HarperCollins was interested, but not at the price ultimately paid.”
The $1.62 billion that Paramount is getting from the sale is less than the $2 billion it would have reaped from the earlier deal. But Paramount benefited from both a $200 million kill fee that PRH was forced to pay last year and the ongoing financial performance of S&S. On Paramount’s earnings call Monday, CFO Naveen Chopra told the Wall Street community, “Between the $1.62 billion sale price, the $200 million termination fee paid by Penguin Random House, and the cash flow we received during the pendency of the deal process, we will realize approximately $2.2 billion of gross proceeds.” Responding to an analyst’s question, CEO Bob Bakish said, “We are very happy with this deal. It’s a great outcome for our company. As we’ve discussed before, Simon & Schuster is a fantastic asset. But from a strategic perspective, it’s not core to our mission of creating and monetizing world-class video entertainment. And we think we found a very good home for S&S with KKR.”
Simon & Schuster, which will celebrate its 100th anniversary in April, has a lucrative backlist that ranges from Hemingway and Fitzgerald to Colleen Hoover and Stephen King, who was a vocal opponent of the PRH sale. Over the past few years, it’s also churned out a number of political blockbusters, as well as mega-bestsellers like Jennette McCurdy’s I’m Glad My Mom Died and “BookTok” phenoms like Taylor Jenkins Reid’s The Seven Husbands of Evelyn Hugo. The company has a big fall coming up with two major nonfiction tentpoles: Walter Isaacson’s biography of Elon Musk and a memoir from Britney Spears, which may help justify the optimism that brought Karp’s memo to a close: “As I’ve noted before, in our 99-year history, Simon & Schuster has had seven owners. From these transformations we have always emerged stronger…With KKR’s support, we can look forward to benefiting from their experience in helping companies to grow.”
On the other hand, could this is all just be a lot of wishful thinking and deft corporate spin? “KKR has a reputation as an aggressive cost-cutter,” the FT’s Lex column noted the other day. “That could end up spawning a whole new horror story.” Or, as the book-world maven Maris Kreizman tweeted: “The fear that we’ll look back on today and think, well, that was the beginning of the end.”
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