First off, everything that follows here is idle speculation. I don’t know anything that wasn’t reported in the coverage of this attempted merger. But since this is America, and our media was built on unfounded speculation, I’m going to engage in a bit of that age-old tradition.
The deal the publisher Hachette was trying to consummate for Perseus Books with the involvement of the distributor Ingram fell apart yesterday. No specifics were given but a few subtle hints were dropped. Now I’m going to use the parlance of the NBA to describe how I think these conversations went down because this looks very similar to a failed attempt at a three-team trade to me. Keep in mind, while I’m speaking in terms of players, just consider the dollar figures as straight cash except for the two Perseus assets (their catalog and distribution business). Also, there is no correlation between the amounts I’m using and what was actually discussed. I just picked some nice even numbers to illustrate my point. Here we go…
Hachette, a capped out team with no space to take on any extra salary, approaches Perseus about one of their players (their catalog of titles), and makes them an offer.
“We really like that guy. We’ll give you this $3 million guy here for him.”
“Well, we don’t really want to move that guy,” Perseus responds, “we like him, so we’ll have to say no.”
“What about if we gave you this $5 million guy over here?” Hachette comes back.
“We do like him a bit better but, really, we’re not inclined to move him. No thanks.”
“Is there any way we can reach a deal?” Hachette asks.
“If you really want him, we’ll take the $5 million guy but you also have to give us $10 million in assets for this other guy here (distribution business). It’s the only way we’ll make a deal.”
To which Hachette responds, “We’ll get back to you.”
Hachette does have an $8 million guy to pair with the $5 million guy but they’d still have to come up with $2 million more in assets to meet Perseus’ price and there’s nobody on their roster that meets that description. Not doing so would leave them $2 million over the cap. And they don’t really want the other guy anyway. So Hachette calls up another team they think would want him, Ingram.
“So we’re working on a deal with Perseus and we’re going to take on this guy here. We know how much you’d like a player like that on your team. We can send him to you for in exchange for that $8 million guy and this other $2 million guy you have.”
“We do really covet that guy,” Ingram replies, “but we think that’s a little steep. Plus, you need us to finish this deal or you wouldn’t be calling so we’ll give you the $8 million guy only.”
Now this wouldn’t work for Hatchette either because it would still leave them a $2 million asset short and still that far over the cap. So they go back to Perseus.
“Ok, we’ll take that other guy back but we’ve only got this $8 million guy here we can give you for him.”
“No,” Perseus replies. “We want $15 million coming to us for those two guys or nothing. We’re happy with where we are. We don’t have to make a trade.”
To which Hachette finally says “Fuck.”
Basically, Hachette was in a position with limited resources and no leverage trying to pry a guy away from a team that didn’t want to move him and trying to convince a second team to take on the part of the trade they didn’t want at full cost. The problem here is the approach. Hachette needs to understand that in order to pry something loose from an unmotivated seller, you’ve got to make a Godfather offer. Overpaying in a situation like that is simply a necessity. If they weren’t prepared to go there, don’t make that phone call in the first place. Both Ingram and Perseus seemed to understand that, and understand that Hachette had to pay the freight if they wanted their assets and cooperation. Hachette didn’t seem to.
This makes me wonder if they’re doing the same thing with Amazon, over playing their hand. Their leverage with Amazon isn’t very overwhelming, and shrinking by the day, and they seem to be asking for a return on a deal Amazon is neither motivated to nor terribly interested in acquiescing. This failed acquisition smacks of a company that thought it was going to quick and easy add a big catalog of new titles, simply flip the distribution biz out at full cost to someone else and position itself better to fight Amazon, all while talking other companies into doing what it wanted without having to sweeten the deal for them.
What kind of return you get on a deal like either of these, or if you can even make one at all, depends on the leverage and/or money you have at your disposal. Hachette doesn’t appear to have much of either but they’re negotiating like they have the whole world in their corner.
If I had to make a guess right now, we’ll see one of two things happen in the immediate future. Either Hachette will quickly and quietly cut a deal with Amazon and put out a press release pretending like they won or the struggling publisher will be split off from its parent and sold to someone else before a deal with Amazon ever gets made. Hey, maybe Amazon will buy them. They do like low prices and Hachette’s value is sinking like a stone.
Dan Meadows is a writer living on the banks of the Chesapeake Bay. Follow him on Twitter @watershedchron