Bunny bid: Hefner aims to ac­quire rest of em­pire

orig­i­nal play­boy may face chal­lenge from pent­house

Austin American-Statesman - - BUSINESS - by An­drew Vanacore and Ashley heher

CHICAGO — Hugh Hefner wants to buy out the por­tion of the Play­boy em­pire he doesn’t al­ready own in a bet that the iconic brand can still bring in prof­its even if the ink-on-paper mag­a­zine is past its prime.

Hefner, who founded Play­boy mag­a­zine more than a half-cen­tury ago, is ap­par­ently not alone in think­ing Play­boy can keep swinging into the dig­i­tal age. A few hours af­ter Play­boy En­ter­prises Inc. an­nounced Hefner’s of­fer Mon­day, the cor­po­rate par­ent of ri­val Pent­house mag­a­zine said it will also make a bid.

But it does not ap­pear that the 84-year-old Hefner — who owns about 70 per­cent of the com­pany’s vot­ing shares and 28 per­cent of the non­vot­ing stock — will budge.

Play­boy said Hefner made it clear in his buy­out pro­posal that he is not in­ter­ested in a sale or merger. The com­pany said Hefner expressed con­cern that sell­ing Play­boy could threaten the brand and its legacy. Hefner has in­stead pro­posed join­ing up with a pri­vate eq­uity firm, Rizvi Tra­verse Man­age­ment, to take Play­boy pri­vate.

The com­pany has stretched its brand thin try­ing to off­set de­clin­ing ad­ver­tis­ing rev­enue by leas­ing its fa­mous bunny ears for ev­ery­thing from cigars to slot ma­chines.

Hefner, who is edi­tor-inchief and chief cre­ative of­fi­cer, is of­fer­ing $5.50 per share in cash, nearly 40 per­cent above Fri­day’s clos­ing stock price. Shares of the com­pany gained 41 per­cent Mon­day to close at $5.55. Based on the num­ber of shares out­stand­ing on April 30, Hefner’s pro­posal is worth $122.5 mil­lion and val­ues the com­pany at about $185 mil­lion.

Play­boy, which has its head­quar­ters in Chicago, de-

Con­tin­ued from B scribed Hefner’s of­fer let­ter as a pro­posal and said there was no guar­an­tee it would get any for­mal bid from Hefner. But Play­boy said Hefner in­di­cated that Rizvi Tra­verse has been in touch with “ma­jor len­ders re­gard­ing po­ten­tial fi­nanc­ing” and is “highly con­fi­dent am­ple fi­nan­cial re­sources will be avail­able to com­plete the trans­ac­tion.”

If the deal goes through, Hefner will have a ma­jor turn­around ef­fort on his hands.

The racy mag­a­zine he launched in 1953 had its most pop­u­lar years in the 1970s. It has strug­gled to lure read­ers and ad­ver­tis­ers as the In­ter­net sup­plants print as the top pur­veyor of adult con­tent. Fall­ing rev­enue has forced sev­eral rounds of lay­offs since 2008.

Play­boy mag­a­zine, which along with its web­sites gen­er­ated 44 per­cent of the com­pany’s $240 mil­lion in rev­enue last year, sold 311 ad pages for its U.S. edi­tions last year, down from 765 in 2000, ac­cord­ing to the Pub­lish­ers In­for­ma­tion Bureau. Its av­er­age cir­cu­la­tion has fallen by about a mil­lion copies dur­ing the same pe­riod to 2.02 mil­lion. That’s down from more than 5.6 mil­lion in 1975.

These days, most of the com­pany’s in­come is drawn from li­cens­ing the Play­boy brand for con­sumer prod­ucts.

Its li­cens­ing unit re­ported in­come of $21 mil­lion last year, fol­lowed by $9.9 mil­lion from tele­vi­sion prop­er­ties and just $1.6 mil­lion from the mag­a­zine and its web­site. Fac­tor­ing in cor­po­rate over­head, costs re­lated to lay­offs and write­downs on the value of its as­sets, Play­boy re­ported a net loss of $51.3 mil­lion in 2009.

Play­boy’s strat­egy of re­ly­ing on li­cens­ing for prof­its is a risky one, warned Laura Ries, pres­i­dent of the mar­ket­ing strat­egy firm Ries & Ries in At­lanta. She said Play­boy has lent its brand too freely.

“It’s like pour­ing wa­ter into beer,” she said. “It re­ally di­lutes what it is to be a play­boy.”

Marc Bell, the CEO of Pent­house owner FriendFin­der, said he is in­ter­ested in Play­boy more for the brand’s po­ten­tial on the Web and mo­bile gadgets than the printed mag­a­zine.

“The real fo­cus is on the dig­i­tal side,” Bell said. Though he said shut­ting down the print mag­a­zine would be a bad idea, he added, “It needs to be run like a 21st cen­tury com­pany.”

It is not clear what re­sources pri­vately held FriendFin­der has to put be­hind its bid. FriendFin­der, which also runs other adult and dat­ing web­sites, pro­duces adult videos and li­censes adult con­tent, shelved its plans to go pub­lic ear­lier this year. Bell de­clined to give specifics on his of­fer.

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