Time is facing one of its most critical decisions since the magazine publisher was founded by Henry Luce and Briton Hadden in 1922.
Should the company's board agree to a sale as its print advertising lifeblood continues to drain away? Or should it let new CEO Rich Battista implement his grand vision of transforming Time from a fading print empire into a digital powerhouse?
The magazine owner has spent five months restructuring its business and replacing senior management. The goal: to persuade advertisers to pour money into Sports Illustrated, People and other titles instead of digital outlets like BuzzFeed and Vice.
Wall Street lost patience during the makeover attempt, sending shares down 21% through Nov. 25 and leaving the company vulnerable to a takeover. The stock has risen 11% since Nov. 28, when reports surfaced that the company had received -- and spurned -- a takeover offer from investors Edgar Bronfman Jr. and Ynon Kreiz.
"I'm sure the new management team wants time to prove out their thesis that they can build their digital business faster than the print business declines," said Paul Sweeney, an analyst at Bloomberg Intelligence. "But if I'm a board member and my fiduciary duty is to my shareholders, I'd have to look very hard at any bid that comes in."
Jana Partners, which acquired a stake in Time earlier this year, sometimes plays an activist role to encourage companies to make deals, adding an element of pressure. Mr. Bronfman's group offered as much as $2 billion, or $18 to $20 a share, according to a person familiar with the matter. That would have been as much as a 47% premium over Time's closing price on Oct. 20, when Mr. Bronfman made the offer.
The publishing giant has ongoing relationships with Morgan Stanley and Bank of America, and after the Bronfman bid both banks began helping Time field takeover offers, according to a person familiar with the matter. There's no active sales process, said the person, who wasn't authorized to discuss the matter publicly. Time, Morgan Stanley and Bank of America declined to comment.
If Time were sold, the buyer would probably sell off pieces of its magazine portfolio. Meredith, which publishes Better Homes and Gardens and other magazines geared toward women, may be interested in titles like InStyle and Southern Living, but probably not Fortune or Sports Illustrated. In 2013, Time almost merged with Meredith before talks fell apart.
"Any potential acquirers may have to find buyers for brands it would want to divest, or be willing to shut down brands that don't fit in their portfolio," Eric Katz, an analyst at Wells Fargo, said in a note. "Which may be easier said than done."
In a statement, Meredith CEO Steve Lacy said "there have been absolutely no meaningful conversations between our two companies since 2013." But he added, "We are continually exploring opportunities to add attractive magazine media broadcast and digital/video brands to our multi-channel media portfolio."
Any buyer would acquire a company saddled with $1.2 billion in long-term debt and a print business in steady decline. Last quarter, print ad sales, which make up about 40% of Time's revenue, fell 10%. The publisher's operating income before depreciation and amortization has dropped an average of 11% over the past five years, Katz said.
Yet Time's decision to reject Mr. Bronfman's takeover bid may reflect what Mr. Katz called "a few bright spots" in its digital business in the third quarter. The company's online ad revenue rose 63% last quarter. While that was largely due its acquisition of Viant, the owner of MySpace, revenue from native advertising, or videos and articles created for marketers, is expected to more than double this year, Mr. Katz said. Programmatic advertising, or ads sold through computer algorithms, is projected to be up 30%.
Time has been on a buying spree lately to give its famous magazines more digital muscle. It bought MySpace because it still has a wealth of user data from when the site was a popular social media platform that could be valuable for targeted advertising. The company also acquired HelloGiggles, a beauty and lifestyle website, to appeal more to younger women. It also recently launched an ad-supported streaming service focused on celebrity culture and live events.
"I accepted this opportunity because I strongly believe we can turn Time into a growth story," Mr. Battista said on an earnings call last month.
The question now is whether Time's board will give him that chance.
-- Bloomberg News