Random House/Doubleday Merger

Random House/Doubleday Merger

David Kent is in a combative mood. Seated at the desk in his book-lined corner office, the 48-year-old president of Random House Canada, a Toronto-based publisher, is taking calls and returning messages from business associates and journalists. Kent, a transplanted American who became a Canadian citizen in 1987, had just landed in the middle of a nationalist uproar over the federal government's approval of a corporate merger that would see Random House absorb rival publisher Doubleday Canada. The callers are particularly interested in his thoughts on the latest salvo from the nationalist camp - a potential lawsuit against Investment Canada on the grounds that it failed to conduct a proper review of the transaction. "The government visited our offices, scrutinized us, looked at all our records and called us exemplary corporate citizens," Kent fumes. "And they say this is bad for Canada."

That is what they are saying, they being the Association of Canadian Publishers and its president, Jack Stoddart, owner of Toronto-based Stoddart Publishing Co., and the 1,200-member Writers Union of Canada and its chairman, Peter McFarlane, who happens to be a Random House author. According to the writers, the merger will mean one less publishing house operating in Canada - an assertion that Random House and Doubleday dispute - and fewer opportunities for Canadian authors to reach the readers of this country. According to Stoddart, the deal will create a behemoth that controls 40 per cent of the retail market - Random House and Doubleday say the figure is about 18 per cent - and put smaller publishers like himself at a competitive disadvantage. "If you build a company and it reaches that size, that's one thing," says Stoddart. "But to do it through acquisitions is horrendous."

The controversy over the Canadian merger is part of the fallout from an international megadeal last spring that shook the U.S. book publishing industry. In March, the German-based media conglomerate Bertelsmann AG, whose holdings include 40 book publishers worldwide, several European television networks and three major record labels, acquired New York City-based Random House Inc. for a reported $2 billion. Bertelsmann already owned the U.S. publisher Bantam Doubleday Dell and announced plans to merge it with Random House in both Canada and the United States.

That led to a review by Investment Canada under a federal policy designed to ensure that book publishing remains a viable domestic industry. Kent says he supplied confidential financial data about revenues and profits, along with figures on royalties paid to Canadian authors, purchases from Canadian suppliers, and contributions to arts organizations and literary events. "We showed them everything," he says.

But Stoddart contends that Investment Canada slipped up on the Doubleday end of the review, and opened the door for a lawsuit. The majority owner of Doubleday Canada, on paper at least, is Winnipeg businessman Abraham Simkin, who has held most of the Doubleday shares since selling one of his companies to Bertelsmann in the early 1980s. Stoddart says that because Doubleday is technically Canadian-owned, Investment Canada was obliged under its own takeovers policy to seek a domestic buyer before approving the merger with a foreign publisher. "Now, Bertelsmann says it always controlled the company even though somebody else is the majority owner, and Investment Canada falls into line," says Stoddart. "We object most strenuously."

But for all the heated words, readers and writers will likely see little, if any, short-term change in the publishing landscape. Kent, as well as senior Doubleday executives, say both houses will continue to operate independently and issue their own titles. As well, they promised the government to increase the scope of their Canadian output and to maintain employment levels. Doubleday editor-in-chief John Pearce adds that he has signed contracts with authors for books due as late as 2004.

For his part, Kent is incensed at what he sees as churlish and misguided attacks by nationalist publishers and writers. He joined Random House in 1991, hired top-notch editors like Louise Dennys, and decided to create a first-class Canadian publishing program. He suggests critics judge Random House by the results, which include Carol Shields's Pulitzer Prize-winning novel The Stone Diaries, and acclaimed first novels by Ann-Marie MacDonald (Fall on Your Knees) and Gail Anderson-Dargatz (The Cure for Death by Lightning) that were international best-sellers. "We consider ourselves Canadian publishers," says Kent. "We work in Canada. We publish Canadian authors. I don't think the overriding criterion is who has the mortgage on the building." But for Canadian nationalists, home ownership does matter.

Maclean's February 1, 1999