Due Diligence Begins Early And Never Ends - UPDATED

Michael Hedges March 29, 2021 Follow on Twitter

Big media companies take their merger and acquisition activities quite seriously. There are not spur of the moment decisions. Legions of lawyers, accountants and senior managers are involved. Delivering a good deal for the boss can result in a hefty bonus. If it doesn’t work out, well, there’s always work from home.

Last autumn US-based media house ViacomCBS entertained bids for publisher Simon & Schuster. By the end of the year all but two rivals remained; News Corporation and Penguin Random House, subsidiary of German media house Bertelsmann. The ViacomCBS board accepted the US$2.2 billion bid from Bertelsmann, pending competition approvals.

“There is clearly no market logic to a bid of that size,” said News Corp chief executive Robert Thomson, in a statement (November 25, 2020), “only anti-market logic. Bertelsmann is not just buying a book publisher, but buying market dominance as a book behemoth.” Ratcheting up the fury he added that “legal” books will be written about the deal and, tipping to the real fear, “I wonder if Bertelsmann would publish them.” Mr. Thomson is - almost - a News Corp lifer; starting with the Australian newspapers, moving to UK daily Times as editor, then the Wall Street Journal as managing editor before being named to his current position. In the middle there were a few years with the Financial Times.

To many publishing observers there is a David versus Goliath story in this; huge Penguin Random House (Bertelsmann) threatening HarperCollins (News Corp) if not all publishing, authors, agents and anybody else. It came as no surprise, then, that the UK anti-trust agency Competition and Markets Authority (CMA) opened an investigation (March 19) into the proposed transaction and whether that would reduce UK publishing competition. The venue is a bit odd in that Bertelsmann is domiciled in Germany with Penguin Random House and Simon & Schuster principally located in the US. But News Corporation has a special relationship with the UK government.

A day later the US Department of Justice (DoJ) said it, too, would be taking a “second look” into the deal “for its competitive implications.” The US Authors Guild, Booksellers Association and others had been pressing over a big publisher getting bigger. Last year opposition to a proposed merger of educational publishers Cengage and McGraw Hill Education by the CMA and DoJ aborted the deal.

Owing to increasingly litigious competitors and activist competition agencies media executives seeking growth by merger and acquisition prepare very carefully and very early. While Bertelsmann executives are known for extreme diligence in these matters populist hostility toward big deals and big companies has turned up the attention. Government leaders, too, are sensitive during the fragile economic recovery of turning off M&A activity, which stock traders love.

The next announcement from News Corp came last week of the acquisition of Investor’s Business Daily (IBD) and related portal investors.com. It’s a small deal in relative terms, just US$275 million, from O'Neil Capital Management. If approvals are granted it will be spirited into the Dow Jones family with the Wall Street Journal.

News Corp will also be spending a tidy sum on recently filed defamation lawsuits, though liability insurance will certainly cover the cost of those white-shoe lawyers. Election technology company Dominion Voting Systems filed suit (March 26) against Fox News, principally owned by News Corp, for US$1.6 billion. It charges that Fox News “sold a false story of election fraud in order to serve its own commercial purposes, severely injuring Dominion in the process,” reported the AP (March 27). “The truth matters. Lies have consequences,” said the filing. “If this case does not rise to the level of defamation by a broadcaster, then nothing does.” The suit was filed in the US state of Delaware, where both companies are incorporated.

"Fox, one of the most powerful media companies in the United States, gave life to a manufactured storyline about election fraud that cast a then-little-known voting machine company called Dominion as the villain,” continued the filing. Dominion Voting Systems had already filed defamation lawsuits against other right-wing media outlets as well as individuals representing former president Donald Trump who were regular TV guests. Another election technology company, Smartmatic, already filed a similar defamation lawsuit against Fox News asking for damages of US$1.3 billion.

A Fox News spokesperson said the channel’s reputation would be vigorously defended against the “baseless claims.” It seems the defense will not rest on the merits; the broadcast claims of fraud demonstrably false. US legal observers believe Fox News and other defendants will argue that, given their reputation, any reasonable person will “arrive with an appropriate amount of skepticism,” offered the New York Times (March 26).

UPDATE: It certainly appears that News Corp intends to bolster its position in the book publishing business. The company announced (March 29) its acquisition of the consumer book division of Houghton Mifflin Harcourt for US$349 million folding it into the HarperCollins publishing subsidiary “subject to customary closing conditions, including regulatory approvals," noted the News Corp statement. This follows being spurned by ViacomCBS which accepted a superior US$2.2 billion offer from Bertelsmann for publisher Simon & Schuster.

Certainly, consumer book sales have been roaring during pandemic lockdown demand. The HMH back catalogue includes several titles of timely relevance such as George Orwell’s 1984 and Animal Farm as well as J.R.R. Tolkien’s Lord of the Rings and Robert Penn Warren’s All the King's Men, likely Murdoch family favorites. “Downright Orwellian,” noted NeimanLab (March 29).

See also...

• Hot Topics - Media Mergers and Acquisitions

• Hot Topics - News Corp

• Hot Topics - Competition Rules

• Hot Topics - Elections and Media