Primedia Sells Teen Group to Hearst

Primedia has sold its Teen Group, including Seventeen Magazine, to Hearst for $182.4 Million. The deal includes properties Primedia acquired in 2001. These include Teen, a five times per year newsstand product, website, and Cover Concepts, an in school marketing unit. Hearst beat out Hachette Filipacchi for the prize, according to press reports.

The magazine industry had been abuzz about the sale for months. Final bids were due April 16, but that week was dominated by the resignation of Primedia CEO Tom Rogers. Wenner Media was a rumored buyer, and rumored prices ranged from $100 million to $200 million.

As a Hearst publication Seventeen could act as a "feeder title" to Cosmopolitan or even the new Hearst-Disney magazine Lifetime, which is based on the basic cable channel. Under that scenario, Disney could use Seventeen to showcase its stable of teen stars such as Hilary Duff.

Martin Walker, chairman of Walker Communications, a New York magazine consultant, was among those intrigued by the bidding. "It's been around forever," he said of Seventeen. "It's still the #1 book in the category. That counts."



Still, Primedia was challenged to come up with a deal carrying a respectable multiple of earnings. Reed Phillips, managing partner of investment bank DeSilva & Phillips in New York, said magazines are worth about 20% less than they were two years ago.

There are "fewer strategic buyers," he said. In his annual report on the magazine M&A market, Phillips noted that Primedia was the biggest seller of consumer magazines in 2002, selling $244 million worth of properties at good prices. The hope was that Seventeen would bring in a price equal to 10-12 times earnings.

Depending on how the numbers worked out Primedia may or may not now proceed with other asset sales, Phillips speculated. This despite published reports Primedia owners Kohlberg Kravis Roberts are down over $1 billion on their investments in the company and anxious to put capital to work somewhere else. There will be no fire sale, Phillips said.

Andrew Buchholtz, managing director for Veronis Suhler Stevenson, a merchant bank that works on many magazine deals, said both parties got a bargain. It's great for Hearst and Primedia got a great multiple, he thinks.

University of Mississippi professor Samir Husni, who analyzes the business as "Mr. Magazine," praised the deal. "Seventeen had 17 different incarnations in the last three years. Readers don't like change. Readers like stability. If every issue is a complete surprise it's hard."

Husni called Seventeen a "good fit" with Hearst. "You have CosmoGIRL!, Seventeen and Cosmopolitan. CosmoGIRL! emphasizes beauty and fashion, and will continue the way of life approach, while Seventeen will be more celebrity-oriented." In a press statement Hearst said CosmoGIRL! and Seventeen will continue to operate separately.

On an operating basis, this seems a very good time to be a magazine owner. Ad revenues are up, according to the Magazine Publishers of America. Postage rates will be stable through 2006, thanks to a new bill passed by Congress. Other costs seem manageable.

The price of Primedia stock rose and fell on rumors all week. It closed at $2.81 per share on a New York Post report of a $200 million bid, then fell to $2.65 per share after the deal was announced.

It could yet be a very interesting year for magazine brokers, or this could be the highlight.

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