Friday, November 23, 2012

News Corp. Eyes Book Publisher .

by: Christopher S. Stewart and John Jannarone

News Corp., owner of HarperCollins Publishers, has expressed interest to CBS Corp. about acquiring its Simon & Schuster book business, according to people familiar with the talks.


The people described the discussions as preliminary and cautioned that a deal isn't imminent. News Corp. owns Dow Jones & Co., which publishes The Wall Street Journal.

On November 8th, WSJ's Simon Constable sat down with CBS President and CEO Leslie Moonves, for a wide ranging interview. In this segment Mr. Moonves discussed the future of his publishing unit and whether there was a price tag on Simon and Schuster.

The conversations come about a month after the owners of two publishing rivals, Random House and Penguin Group, agreed to merge their books businesses into a publishing powerhouse.

News Corp. made a last-minute expression of interest in buying Pearson PLC's Penguin but never made a formal offer. Instead, Penguin agreed to combine with Bertelsmann SE & Co.'s Random House.

For book publishing, an industry dominated by a half-dozen big companies, consolidation is viewed in part as a way to weather the transition to digital media. Combining forces can allow publishers to gain more heft in negotiating terms with retailers, including Amazon.com Inc., industry executives say.

Simon & Schuster, which was founded in 1924 and publishes about 2,000 titles annually, had $1.6 billion in revenue and $90 million in earnings before interest, taxes, depreciation and amortization in 2011, according to CBS regulatory filings.

News Corp. is in the process of splitting into two listed companies, one containing its entertainment assets, such as the 20th Century Fox film studio and Fox News cable channel, and the other housing publishing assets, including Dow Jones and HarperCollins.

While HarperCollins is relatively small to News Corp. in the media giant's current form, it could account for more than a fifth of the new publishing company's roughly $500 million of operating income for the fiscal year ending in June 2013, according to Michael Nathanson of Nomura Securities.

The new publishing company is expected to have a significant amount of cash on its balance sheet, potentially to be used for acquisitions. One motivation for the split is the flexibility to pursue the purchase of old-media companies that may have turned off current News Corp. investors, according to a person familiar with the company's strategy.

News Corp. recently has shown an appetite in other sectors as it prepares for the split, which is expected to be completed by next June. On Tuesday the company said it had agreed to buy a 49% stake in New York regional sports network YES.

A person familiar with the matter said that deal values the network at about $3 billion. YES's key asset is the right to broadcast New York Yankees games, considered more valuable than those of any other baseball team in the U.S.

The publishing talks come at a tense moment in the publishing world. A recent Justice Department settlement with a few publishers, including HarperCollins and Simon & Schuster, will allow discounting on e-books. Publishers view this as a threat and worry that Amazon could gain even more leverage over them.

What's more, publishers face a host of new competitors, including self-published writers, new digital imprints from literary agents and startups by industry outsiders such as media mogul Barry Diller.

A combination of HarperCollins and Simon & Schuster could create the second-largest publisher in the U.S. market. Random House and Penguin have a combined 28% to 30% of the market, while HarperCollins and Simon & Schuster together account for 18% to 20% of it, according to Albert N. Greco Institute for Publishing Research Inc.

HarperCollins publishes an array of fiction, nonfiction and children's titles in the U.S., including books by such writers as Edward P. Jones, Harper Lee and Maurice Sendak. Simon & Schuster's top titles include Bob Woodward's "The Price of Politics" and Larry McMurtry's "Custer," a biography of the general who fell at the Battle of the Little Bighorn.

Jeffrey A. Trachtenberg contributed to this article.

from: Wall Street Journal

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