Meredith Corporation's purchase of Time Inc. in a US$2.8 billion deal is “a truly transformative moment”, CEO Steve Lacy said in a conference call with investors on Monday. The Wall Street Journal called it “a significant bet on the magazine industry”, while media commentator Colin Morrison said the deal shows that “much of the future promise of legendary brands will come from the ability to exploit them in other channels, whether digital, broadcast, events or product merchandising” (more below).
Meredith Corporation announced late on Sunday it will purchase Time Inc. in a $2.8 billion deal.
In the conference call with investors on Monday morning, CEO Steve Lacy, president and COO Tom Harty, chief financial officer Joe Ceryanec, and Paul Karpowicz, president, Meredith Local Media Group, Jon Werther, president, Meredith National Media Group, outlined the acquisition of Time Inc., in a transaction valued at US $2.8 billion.
Steve Lacey / Photo: meredith.com
"This is truly a transformative moment for the Meredith Corporation in our 115-plus year history," Lacy said. "We're creating a premier media and marketing company with an unparalleled portfolio of national media brands along with a highly-profitable local television business that just completed the best year in its 60-year history. Additionally, we're creating a scaled digital business, that will rank No. 6, in the United States based on user traffic and generate approximately $700 million of digital ad revenues on a combined basis in calendar 2016."
The deal would benefit Meredith Corporation strategically and financially, by creating a portfolio of national brands with greater scale, reaching a readership of 135 million and a paid circulation of nearly 60 million. The purchase would also enhance the company's financial strength and flexibility, diversify and grow advertising and consumer revenue, and scale Meredith's digital presence.
COO Tom Harty said Time Inc.'s media brands are some of the world's most respected brands in the US. It has the largest reach among publishers with an audience of 100 million, lead by iconic brands including People, which has No. 1 in audience and No. 1 in revenue in the US, he continued. The company is also a top digital content creator, with nearly 140 million unique visitors a month, and a social reach of 275 million, globally. Time Inc. also has ancillary businesses including books, retail, content solutions, and custom services.
Meredith's combined national and local media groups' fiscal performance represented a record high in the company's 115-year history, according to Harty. "In fiscal 2017, we reached an important milestone, when digital advertising revenue growth outpaced print advertising revenue declines, and led the way to growth in total advertising revenues for our national media group," he explained. "Beyond advertising our national media group brands continue to deliver rock-solid engagement from our consumers, leading to stable circulation performance over time."
The combined company would generate approximately $800 million in calendar 2016 adjusted EBITDA, before synergies. "Total revenues would be just shy of US $5 billion, with a third of that revenue from print advertising, a quarter from stable and recurring circulation spread across over 50 million individual subscribers, and the remaining 40 per cent, or nearly US $2 billion in revenue, generated from well-diversified and growing businesses including our television broadcasting and the combined digital and brand licensing activities," Lacy said.
"This is a financially-compelling transaction," he said. "We expect to deliver between $400-$500 million of synergies in the first two full years of operations... We also have the capacity of additional acquisitions especially on the broadcast side where we already have a couple of deals in the works."
The deal gives Meredith a larger audience, scale and reach. Combined, Meredith and Time Inc. has the potential to reach 200 million unduplicated consumers, and 170 million unique visitors. The acquisition would create a multi-platform media company, with strong national brands, and a digital platform that operates on a large scale.
"With our new scale, including 250 million addressable email accounts, we have many new segmentation and targeting tools to better leverage our data in real time and put the right offering in front of the right consumer at the right time," Harty explained. "This means delivering higher returns for advertising clients in growth in digital advertising revenues beyond the combined 700 million level."
Combining the digital businesses of Meredith and Time Inc. would create additional revenue opportunities simply by means of scale. Enhanced scale would benefit Meredith in native, video, programmatic, social, and shopper marketing, and also enhances the company's ability to grow brand licensing, affiliate marketing, events and new paid products, Harty said. "In print, these include bringing the advertising performance of our newly-acquired brands in line with our existing brands, it also includes initiatives to grow revenue and contribution from circulation activities, including subscription bundling, monetisation opportunities, content creation and additional vendor synergies."
Time Inc. currently has assets for sale including Time UK, Golf, Sunset and Essence, which the Meredith executives said they will allow to proceed and expect to close by the end of the calendar year.
Harty suggested that the company will be filing tender materials in the next two weeks, and is expected to close during the first quarter of calendar 2018, subject to closing conditions and regulatory approval.
Much curiosity and speculation has surrounded this announcement, as financing to support the transaction comes from RBC Capital Markets, Credit Suisse, Barclay's, and Citigroup Global Markets, but also the billionaire Koch brothers, who helped back the deal with $650 million in preferred equity.
The well-known conservative supporters' interest has raised questions about their interest in the deal. However, Koch Equity Development (KED) will not have a seat on the Meredith Board and will have no influence on Meredith's editorial or managerial operations. "Their terms ended up being the best, and their desire to be passive, and not require a board seat and observer rights, made the offer from the Koch Equity Division of their company most attractive," Lacy outlined.
In response to the news, expert media commentator Colin Morrison, said, "Time Inc.'s IPO was entirely due to the determination of its former parent Time Warner to focus on its TV-movie business. As an overstaffed, traditional print-centric media group, Time Inc. was to say the least ill-suited to be a listed company. The result has been unrelenting pressure on the management."
By contrast, Morrison outlined, many of the best-performing magazine portfolios are seen to be those of diversified media companies. "The magazine business model has been shattered by the exploding choice for readers and advertisers. These businesses now need the time, resources and opportunity to transform themselves. Time Inc. has not had that opportunity - until now. A well-funded acquisition and an agile acquirer creates opportunities that Rich Battista and his team have never had."
He suggested that there are plenty of good assets in the Time Inc. portfolio which Meredith could take advantage of. "Meredith's assertion that they will cut $400-500 million off the costs within two years had magazine people everywhere nodding. Everyone can see that, for all the salami-slicing of the past few years, Time Inc. still resembles the costs and structure of a company that grew rich during the magazine boom-times of the 20th century," Morrison said. "What we don't yet know [exactly] is what will happen to the parts of the Time Inc. business which Meredith - in earlier negotiations - had suggested it did not want: Time and Fortune magazines; and the whole under-profitable UK portfolio which is currently the subject of negotiations in London. "
Meredith Corp deal with Koch on Time mag? https://t.co/7BY7yLRkKl <Is it possible that politically-active Koch bros have a deal to buy-out Time magazine - one of the brands that lifestyle-centric Meredith once didn't want?>— Colin Morrison (@ColinMorrisonUK) November 27, 2017
According to Morrison the consolidation of companies in the industry, around the world, are a sign of things to come. "The need for rationalization, consolidation - and with it investment concentrated on the best brands - is overwhelming. This one deal changes the ownership of the largest magazine publishers both in the UK and US, so it's a big deal. And there will be more concentration over the next year or two."
The Meredith/Time deal is a reminder of the state of the magazine market. "Time Inc. is the home of many of the world's best-known magazines and it has been struggling to transform itself into a credible business for the future," Morrison said. "Nobody should believe that the overall decline in magazine advertising and copy sales is stopping or that these traditional media are going to find a simple way to transfer anything like the current business model to digital. It's a time for much more than merely tweaking the business model. Meredith knows that very well."
In terms of the industry as a whole, Morrison suggested the most important thing for publishing companies is to recognise that - while many magazines can still thrive in print as well as digital - much of the future promise of legendary brands will come from their exploitation in other channels, whether digital, broadcast, events or product merchandising, he said.
"This acquisition underlines the extent to which the US general magazine market will now be dominated by Hearst and Meredith - both companies which are succeeding by exploiting all other media channels while also making a good fist of prolonging the life of magazine brands," he said. "There can always be good money in these magazine brands but they need change and investment from parent companies whose fortunes are no longer totally dependent on them."
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