Paramount wins bid for Macmillan Merger would create No. 2 book publisher


NEW YORK -- In a merger that would join two prominent names in publishing, Paramount Communications Inc., the parent company of Simon & Schuster, agreed yesterday to buy Macmillan Inc., the 150-year-old company that publishes such writers as Edith Wharton, Ernest Hemingway and F. Scott Fitzgerald.

The merger, expected to be completed in early 1994, would create the second-largest book publisher in the world, after Germany's Bertlesmann A.G.

Paramount agreed to pay $553 million in cash, a price that industry analysts characterized as extraordinarily high. The figure is believed to be about 6 percent more than the next-highest offer, according to several executives close to the auction.

In a business in which traditional multiples are closer to 1.5 times sales, Paramount's bid came to nearly two times sales. Macmillan had revenue for the 1993 fiscal year of about $290 million and cash flow of about $25 million.

The bidding for Macmillan sets new highs for publishing properties at a time when the price for Paramount has escalated. Because Macmillan has been sold at such a premium, its value might help justify a bidder's paying even more for Paramount.

Ironically, however, if the bidding continues to escalate and the final buyer for Paramount loads the company with debt, that could ultimately undo the merger agreed upon yesterday, because a new owner might have to sell assets to reduce debt, as Time Warner did when its merger was completed.

Paramount must receive antitrust approvals before the deal can go forward. Creating a company with nearly $2 billion a year in sales, the merger would produce a powerhouse in trade and college publishing. Paramount is the largest college publisher; Macmillan is the seventh-largest company in the college market.

An antitrust lawyer with experience in the media business said that if the merger gave the new company more than 20 percent of the combined market in a given year, measured in dollars, there would be an antitrust issue. If the merger gives Paramount more than 30 percent control of a market, it is unlikely to be cleared. The numbers were not available yesterday, and Paramount declined to comment.

Paramount, the focus of a vicious takeover battle between its friendly merger partner, Viacom Inc., and a hostile bidder, QVC Network Inc., had been eager to acquire Macmillan for the past year.

Antitrust issues could get more complex if QVC wins Paramount. Advance Publications, the parent of Random House, is an investor in QVC, having agreed to put up $500 million in the fight for Paramount.

Richard E. Snyder, the chairman of Paramount Publishing, is said to believe that his businesses have enormous synergy with Macmillan's. Publishing industry experts said yesterday that Mr. Snyder could justify the acquisition by a wide array of administrative cost savings.

"Paramount will be able to crush the cost out of this business by putting things together," said one publishing executive. "The whole system of shipping, handling, accounting and distributing books is something Paramount already has in place. They won't need parallel operations. That is the big advantage Paramount had in the bidding wars."

Macmillan Inc. was put up for sale as part of the liquidation of Maxwell Communication, the bankrupt empire of Robert Maxwell, who died in 1990. The company had been operating under the supervision of the U.S. Bankruptcy Court in Manhattan and administrators in London. Yesterday's sale was the last major asset disposition of the empire.

Paramount's trade division has been strong in new releases. The company focuses on big best sellers. By contrast, Macmillan has concentrated on nonfiction evergreen titles in the self-help area. Over the past decade, however, Macmillan had acquired rights to publish a rich list of classic authors.

Macmillan's list of perennially popular books includes "The Joy of Cooking" and "The Baseball Encyclopedia." Simon & Schuster's best sellers include "The Man in the Gray Flannel Suit," "The Rise and Fall of the Third Reich" and "All the President's Men."

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