Bunny bid: Hefner aims to acquire rest of empire
original playboy may face challenge from penthouse
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.