Time was up for Time as it joins forces with Meredith
It’s a bittersweet day for Old Media. Time Inc., publisher of the namesake iconic magazine, is selling out as its print-advertising revenue shrinks, with little offset by its ambitious digital efforts.
Meredith Corp. — whose titles include Better Homes & Gardens that target mostly women — is buying Time for US$18.50 a share, or US$2.8 billion including debt, in hopes of becoming a more formidable competitor to Facebook Inc. and Google in online advertising. The deal ends a years-long pursuit of Time by Meredith and other bidders and closes the books on one more offshoot of the Time Warner Inc. media empire (Time Warner Cable sold to Charter Communications Inc. in 2016, and Time Warner has agreed to be bought by AT&T Inc. should the government allow).
Price and financing shortfalls had always tripped up talks between Meredith and Time, but now they’ve turned to an unlikely source for financial assistance: the Koch brothers, powerful forces in conservative politics. KED Equity Development, the investment arm of Koch Industries, is providing a US$650 million equity injection.
Investors will want to take the money that Meredith and the Kochs are offering and run.
Given the optics and likely unease among some journalists Time employs, the companies were quick to note that KED’s preferred stake is passive and that its people won’t have board seats or editorial influence. Questions will remain nonetheless.
The transaction values Time at merely seven times both trailing 12-month EBITDA and analysts’ average forecast for full-year 2017 EBITDA. Meanwhile, buyers have paid a median multiple of 15.6 for acquisitions in the U.S. this year, and Time’s former parent, Time Warner, commanded a valuation nearly as rich in its sale to AT&T.
But this is a situation in which investors will want to take the money that Meredith and the Kochs are offering and run. The handful of analysts who still cover Time haven’t been very optimistic about its shift to digital, and Meredith’s offer is well above their average US$14 share-price forecast.
As for Meredith, the company expects to save US$400 million to US$500 million in costs in the first two years after the merger is complete and that could lift its stock. Time’s new owner will also probably continue paring its assets to focus on only the most viable brands, such as Sports Illustrated.
There’s also the question of whether Meredith keeps its TV stations, which provide more than a third of its revenue and generate a lot of cash flow. As the Federal Communications Commission looks to relax rules governing media ownership, Meredith’s TV assets are becoming more valuable to acquirers. Sinclair Broadcast Group Inc. is among those consolidating the broadcast space with its proposed US$6.6-billion deal for Tribune Media Co.
Will Time change its editorial thrust under its new owners and backers? That’s hard to say. But given the chance to cash out and join forces with a friendly rival instead of facing an uncertain future on its own, it’s clear why time was up for Time.