NEW YORK (Reuters Breakingviews) - Time beat the clock. After rejecting at least two earlier entreaties, the publisher of Fortune, Sports Illustrated and other magazines agreed to be acquired by rival Meredith for $1.8 billion, which includes a hefty 46 percent premium. It’s a lucky break because a go-it-alone strategy looked doomed. Bountiful cost savings, however, will go to the buyer and its new billionaire backers.
Like newspapers before it, glossy titles are suffering from a dearth of advertising revenue after decades of under-charging readers. Over the past few months, Jann Wenner has put Rolling Stone up for sale, and a generation of acclaimed editors, including Vanity Fair’s Graydon Carter, has headed for the exits rather than preside over another round of cuts.
Time’s fate was all but sealed once Time Warner spun it out of the studio and TV empire back in 2014. Loaded down with debt, Time had little chance to overcome the forces besieging the industry.
Chief Executive Rich Battista vowed to put a greater emphasis online. If the recent struggles at BuzzFeed, Vice and Mashable are any indication, however, siphoning money away from Facebook and Google is proving tough. And those outfits are not yoked to print. Time’s digital advertising accounted for only 20 percent of shrinking revenue in the latest quarter.
Fortunately for Time shareholders, Meredith has been a persistent suitor. After failed merger efforts over the last few years, the $18.50-a-share all-cash offer provides nearly $600 million more than the target’s market value when deal talks surfaced on Nov. 16.
The presence of Charles and David Koch, whose private equity fund is kicking in preferred equity to help pay for the acquisition, may create concern for some readers because of the brothers’ history of supporting conservative causes. They aren’t getting a board seat, though. The investment, which resembles one Mexican billionaire Carlos Slim made in the New York Times, also includes a solid financial rationale.
Meredith is touting between $400 million and $500 million of cost savings within two years of the companies uniting. Once taxed and capitalized, at the low end of that range they would be worth some $2.4 billion today – on a $2.8 billion deal, including debt. If nothing else, that should buy Meredith and the Kochs some time.
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