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Paramount Agrees to Sell Simon & Schuster to KKR, a Private Equity Firm

Paramount said on Monday it had reached a deal to sell Simon & Schuster, one of the biggest and most prestigious publishing houses in the United States, to the private-equity firm KKR, in a major changing of the guard in the books business.

The deal, for $1.62 billion, will put control of the cultural touchstone behind authors like Stephen King and Bob Woodward in the hands of a financial buyer with an expanding presence in the publishing industry.

While private equity investors have had a significant footprint in the book business — different firms have owned literary agencies, publishing houses and the retailer Barnes & Noble — the acquisition of one of the largest publishers in the country vastly increases the hold of financial interests in the business.

Richard Sarnoff, who leads KKR’s media, entertainment and technology group, is a familiar name to many in the publishing industry and his involvement is encouraging, said several publishing executives on Monday. Mr. Sarnoff has held multiple positions at Bertelsmann, the company that owns Penguin Random House, and served as chairman of the Association of American Publishers, a trade group.

Also involved is Ted Oberwager, who is on the board of RBMedia, an audiobook company, and Skydance Media, which teamed up with Paramount Pictures on “Top Gun: Maverick,” a Tom Cruise action drama that generated more than $1 billion.

“This is a positive,” Peter Osnos, a longtime publishing executive, said of the deal. “A great publishing company will be owned by people who will want to respect it.”

Since Simon & Schuster was first put up for sale in 2020, many in the publishing industry have fretted over where the company might land.

A sale to another publisher would mean the new management would understand the book business. But it would also mean further consolidation in the industry, with potentially fewer players available to bid on big books, and the chance of layoffs as redundant jobs were eliminated. It could also raise regulatory scrutiny: Paramount’s first attempt to sell Simon & Schuster, to Penguin Random House was derailed by government antitrust concerns.

Private equity, on the other hand, could present different risks. Some deals have come under increased scrutiny in recent years for prioritizing short term gains over the long term health of purchased businesses. Private equity firms tend not to maintain ownership of their acquisitions for long, portending another sale of Simon & Schuster, or else a bid to take it public.

As part of the deal, Simon & Schuster employees will receive an ownership stake in the company, part of a program KKR has developed to improve engagement among those who work in companies it buys. The private equity firm used this model with RBMedia, which KKR acquired in 2018, and recently agreed to sell to another investment firm. When RBMedia was sold, its long term employees earned a cash payout from the sale worth up to two times their salary, KKR said.

KKR is not new to the books business. In addition to RBMedia, KKR has also invested in Overdrive, a digital reading platform used in libraries and schools. Some of those bets have already paid off: KKR agreed to sell RBMedia last month at a substantial premium to its acquisition price. KKR said that under its ownership RBmedia doubled the size of its audiobook catalog, from over 31,000 to over 66,000 audiobooks.

The road to Monday’s announcement has been long and bumpy. After Paramount (then called ViacomCBS) reached an agreement to sell Simon & Schuster to Penguin Random House, the country’s largest book publisher, for $2.18 billion, the Biden administration challenged the sale in court. A judge sided with the government last year. Rather than appeal, Paramount decided to put Simon & Schuster back on the market, obligating Penguin Random House to pay a $200 million termination fee for its trouble, on top of millions in legal costs.

Though KKR’s offer for the publisher is less than what Penguin Random House had agreed to pay, the difference in the price is partially offset by the termination fee paid to Paramount and earnings from the publisher in the intervening years. But KKR is an attractive buyer, in part, because it’s unlikely to raise red flags with regulators.

“Paramount doesn’t want to traipse through another deal that goes bust,” said Erik Gordon, a professor at the University of Michigan Ross School of Business. “It wants to sell the business without more surprises.”

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Mohammad SHiblu

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