Time Inc. faces critical choice of sale or reinvention as a digital power
TIME Inc. is facing one of its most critical decisions since the magazine publisher was founded by Henry Luce and Briton Hadden in 1922.
Should the company’s board agree to a sale as its print advertising lifeblood continues to drain away? Or should it let new Chief Executive Officer Rich Battista implement his grand vision of transforming Time Inc. from a fading print empire into a digital powerhouse?
The magazine owner has spent five months restructuring its business and replacing senior management. The goal: to persuade advertisers to pour money into Sports Illustrated, People and other titles instead of digital outlets like BuzzFeed and Vice.
Wall Street lost patience during the make- over attempt, sending shares down 21 per cent through Nov 25 and leaving the company vulnerable to a takeover. The stock has risen 11 per cent since Nov 28, when reports surfaced that the company had received – and spurned – a takeover offer from investors Edgar Bronfman Jr. and Ynon Kreiz.
“I’m sure the new management team wants time to prove out their thesis that they can build their digital business faster than the print business declines,” said Paul Sweeney, an analyst at Bloomberg Intelligence. “But if I’m a board member and my fiduciary duty is to my shareholders, I’d have to look very hard at any bid that comes in.”
Jana Partners, which acquired a stake in Time Inc. earlier this year, sometimes plays an activist role to encourage companies to make deals, adding an element of pressure. Bronfman’s group offered as much as US$ 2 billion, or US$ 18 to US$ 20 a share, according to a person familiar with the matter. That would have been as much as a 47 per cent premium over Time Inc.’s closing price on Oct 20, when Bronfman made the offer.
The publishing giant has ongoing relationships with Morgan Stanley and Bank of America Corp., and after the Bronfman bid both banks began helping Time Inc. field takeover offers, according to a person familiar with the matter. There’s no active sales process, said the person, who wasn’t authorized to discuss the matter publicly. Time Inc., Morgan Stanley and Bank of America declined to comment.
If Time Inc. were sold, the buyer would probably sell off pieces of its magazine portfolio. Meredith Corp., which publishes Better Homes and Gardens and other magazines geared toward women, may be interested in titles like InStyle and Southern Living, but probably not Fortune or Sports Illustrated. In 2013, Time Inc. almost merged with Meredith before talks fell apart.
“Any potential acquirers may have to find buyers for brands it would want to divest, or be willing to shut down brands that don’t fit in their portfolio,” Eric Katz, an analyst at Wells Fargo, said in a note. “Which may be easier said than done.”
In a statement, Meredith CEO Steve Lacy said, “There have been absolutely no meaningful conversations between our two companies since 2013.” But he added, “We are continually exploring opportunities to add attractive magazine media broadcast and digital/video brands to our multi- channel media portfolio.”
Any buyer would acquire a company saddled with US$ 1.2 billion in long-term debt and a print business in steady decline. Last quarter, print ad sales, which make up about 40 per cent of Time Inc.’s revenue, fell 10 per cent.
The publisher’s operating income before depreciation and amortisation has dropped an average of 11 per cent over the past five years, Katz said.
Yet Time Inc.’s decision to reject Bronfman’s takeover bid may reflect what Katz called “a few bright spots” in its digital business in the third quarter. The company’s online ad revenue rose 63 per cent last quarter.
While that was largely due its acquisition of Viant, the owner of MySpace, revenue from native advertising, or videos and articles created for marketers, is expected to more than double this year, Katz said. — WPBloomberg