US judge says Penguin Random House book merger cannot go forward

WASHINGTON, Nov 1 (Reuters) - A planned USD 2.2 billion merger of Penguin Random House, the world's largest book publisher, and rival Simon & Schuster cannot go forward, a US judge has ruled.

Judge Florence Pan of the US District Court for the District of Columbia, said in a brief order on Monday that she found the Justice Department had shown the deal may substantially lessen competition "in the market for the US publishing rights to anticipated top-selling books".

Unlike most merger fights, which are focused on what consumers pay, this one focused on authors' earnings. The government argued the deal should be stopped because it would lead to less competition for blockbuster books and lower advances for authors who earn USD 250,000 or more. 

Penguin Random House said the decision was "unfortunate", and said it would "immediately request an expedited appeal".

"A merger would be good for competition", said Thomas Rabe, chief executive of Penguin owner Bertelsmann (BTGGg.F), who said the court's decision was based on incorrect basic assumptions.

Penguin writers include cookbook author Ina Garten and novelists Zadie Smith and Danielle Steele, while Simon & Schuster publishes Stephen King, Jennifer Weiner and Hillary Rodham Clinton, among others.

Penguin is owned by Bertelsmann, a German media group, while Paramount Global (PARA.O) owns Simon & Schuster.

"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", US Assistant Attorney General Jonathan Kanter said in a statement.

The US Justice Department had filed a lawsuit aimed at stopping the deal in November 2021.

In hearings held in August, the government argued that the largest five publishers control 90% of the market, and a combined Penguin and Simon & Schuster would control nearly half of the market for publishing rights to blockbuster books while its nearest competitors would be less than half its size.

Penguin Random House lawyer Daniel Petrocelli, who defeated the government in a previous merger challenge, argued during the trial that the deal would have "enormous benefits" for readers and authors alike because the imprints, or brands, owned by the two giants would continue to compete against each other.

Best-selling author Stephen King, who testified during the three-week trial, took issue with this pledge. "You might as well say you're going to have a husband and wife bidding against each other for the same house. It's kind of ridiculous," King told the court.

The top five publishers are Penguin Random House, HarperCollins, Macmillan, Simon & Schuster and Hachette, with Walt Disney Co (DIS.N) and Amazon.com Inc (AMZN.O) also in the market. HarperCollins is owned by News Corp (NWSA.O).

Pan was nominated to the U.S. District Court for the District of Columbia by President Joe Biden, who then nominated her to the appeals court in Washington. She was confirmed in September.