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‘Betting on the future’ - what others say about Meredith’s prospective Time Inc. deal

In what is being described as a significant bet on the future of the magazine industry in a time when most media companies are still trying to find their footing in the digital world, Meredith Corporation announced this weekend that it has entered into a binding agreement to acquire all outstanding shares of Time Inc. for US$18.50 per share in an all-cash transaction valued at $2.8 billion.

The Wall Street Journal (WSJ) reported the deal to be a significant “bet on the future of the magazine industry”, but the Financial Times said the deal represented the end of an era for the 94-year-old Time Inc., publisher of Time, Sports Illustrated, People, Fortune and Entertainment Weekly. Time has been trying to transform itself from a print to a digital business in the face of successive years of declining revenues, but has been “shackled with a $1.2 billion long-term debt burden,” writes the FT. While the magazine owner spent months if not years restructuring its business, even trying to sell off some magazines titles, it failed to convince advertisers to continue pouring money into its print products or digital offerings.

The WSJ argues that by teaming up with Time, Meredith will have more scale online to compete with Alphabet’s Google and Facebook, which are projected to account for more than 63 per cent of US digital advertising spending this year, according to eMarketer.

“Like the broader media landscape,” writes the WSJ, “the magazine industry is undergoing profound changes as print advertising revenues continue to decline and publishers face off with tech giants for online ad dollars. The impact has been dramatic, especially on smaller publishers, contributing to consolidation in the magazine industry.”

Most recently, Hearst agreed to acquire family-owned magazine publisher Rodale Inc., and Jann Wenner is seeking to sell his majority stake in Rolling Stone.

Industry experts say Time battled to adjust to a more robust digital future putting Meredith in a strong position to broker the deal. Meredith has stood relatively strong with a diversified portfolio while Time Inc. has, according to the New York Times, stumbled and “failed to keep pace as the industry-wide transformation from print to digital rendered old methods of magazine-making obsolete and publishing companies crumbled under the pressure of declines in print advertising and circulation”. 

The Meredith portfolio, which includes Better Homes & Gardens, Family Circle, Allrecipes, Shape, as well as local television stations, are aimed at “middle America” families and women, which allowed the company to better weather the economic storm that has faced print publishers, the New York Times claim. 

Bloomberg columnist in deals and acquisitions Tara Lachapelle writes Meredith’s intention in securing a takeover started as far back as 2013, when Time was still under Time Warner Inc.'s roof. At the time there were discussions to sell some of the magazines. While Time shareholders responded positively to rumours of the latest takeover, she hints that the timing of the sale most probably came at the right time and had it been postponed too long, the stock could have not been worth what it was traded at.

Lachapelle writes that, with most print media, Time Inc.’s circulation was in decline and the shift to digital has not been an easy one for the publisher. For the nine months ending 30 September, Time’s circulation revenue dropped nine per cent, hurt by both lower subscription and newsstand sales and the company income was down 15 per cent for the first quarter alone.

Also reporting on the proposed takeover, The UK’s Guardian newspaper focussed on how large the new portfolio base will be. It says when combined, the Meredith and Time brands will have a readership of 135 million people and paid circulation of nearly 60m. “The deal also will expand Meredith’s reach with millennials, creating a digital media business with 170 million monthly unique visitors in the United States and more than 10bn annual video views.”

Combined, the companies posted $4.8bn in revenue last year. Meredith expects it will save up to $500m in costs in the first two years of operation and plans to “aggressively pay down” debt by 2020.

Meredith is using $3.55 billion in financing commitments from a variety of lenders and a $650 million preferred equity from Koch Equity Development, an investment arm of Koch Industries, to finance the deal but played down the importance of the funding by Koch Equity Development, saying the Koch brothers will not be on the board of the new company and will also not influence editorial decisions. Steve Lombardo, a spokesman for Koch Industries, said the Kochs had no plans to take an active role in the expanded company. “This is a passive financial investment made through our equity development arm.”

According to marketwatch.com the selling price of $18.50 a share in cash is 46 per cent premium to Time’s closing price on November 15, before reports of Meredith’s renewed interest in a deal. More recently, the stock closed on Friday at $16.90.

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