Hot category, cool response
If one judges by the number of new entrants, the teen-girl category is the hottest in magazines. But that hasn't translated into a superheated auction for Seventeen. Bids are due next week for the title. As last week closed, Hachette Filipacchi Media US and Hearst Magazines continued to weigh whether to participate, said executives familiar with the situation, but there are indications Hearst is lukewarm on the property.
Acquisition-derby perennials Time Inc.,
Another interested party, said one executive familiar with the situation, is teen cataloguer/marketer Alloy. Alloy is no stranger to magazines, having launched the controlled-circulation quarterly magazine AlloyGirl off its catalog and partnered on a Web presence for Hachette's Elle Girl and Hearst's CosmoGirl. An Alloy spokeswoman declined to comment.
Too big for Alloy?
The deal would be a big one for Alloy -- maybe too big. In its most recent fiscal year ended Jan. 31, the publicly traded Alloy posted a net profit of $23.3 million on revenues of $299.3 million. Last year, according to executives familiar with its finances, Seventeen and its related businesses posted earnings before interest, taxes, depreciation and amortization -- or Ebitda, a measure of operating results before deducting those expenses -- of about $15 million on revenues of about $100 million.
Non-strategic buyers -- those without magazine operations or other business adjacencies to Seventeen -- are considered nonstarters for a single title this big, said one such executive.
Won't find a price
The bottom line is that many executives familiar with the current market for this deal believe its quite possible that Primedia won't be able to find a deal at a price it deems worthwhile and may yank its largest title off the auction block.
There's precedent for such a move, said executives familiar with magazine deal markets; Primedia ultimately did not sell its gun and photography titles after seeking buyers. (A Primedia spokesman said the company did not comment on such matters.)
Two executives who've seen Seventeen's financials expressed concern over the health of the title's circulation file. But Linda Platzner, who continues to oversee Seventeen in her new position as Primedia executive vice president and group publisher of its remaining broad-reach titles, said the magazine was comfortable with its current circulation of 2.5 million. (In the last half of 2002, Seventeen's single-copy sales slipped drastically, dropping 24.1% to 368,250.)
Seventeen still leads its category in ad pages, but its performance faltered in the first quarter of this year, with ad pages falling 5.9% to 228.6, according to Publishers Information Bureau. The next-biggest titles in the category, G&J's YM and Time Inc.'s Teen People, each posted double-digit gains.
A selling price of 12 times Ebitda, which one executive said Primedia generally sought, would put the deal's value, based on the 2002 Ebitda figure, at $180 million -- but the expected Ebitda decline of the past three months would make for a significantly lower price. When Primedia announced it would "explore strategic options" for Seventeen, executives anticipating the interest of Conde Nast -- which had previously contacted Primedia about a deal -- expected the sale price to easily top $200 million. None expect that figure to be reached now.
When Ms. Platzner, who retains the title of president of Primedia's teen properties, was quietly promoted in early April to her new position, some observers thought the move indicated a deal was coming, and that the company wished to retain her. Ms. Platzner dismissed this possibility, noting that in her new position, which had been vacant for over a year, she continues to oversee Seventeen.
Publisher receives calls
While referring questions about the sale process to the investment banking firm Morgan Stanley (which did not return a call), Ms. Platzner insisted she had received "quite a few calls" about Seventeen. "I can't imagine there isn't interest there," she said.
Seventeen's sale process reflects the changes wracking the category. The combined circulation of the first new-style teen titles -- Teen People and CosmoGirl -- now top that of Seventeen. In early 2002, Primedia shuttered Teen, which long stood beside Seventeen and YM as one of the category's big three. Primedia picked up Teen in its acquisition of Emap USA.
Emap had previously sought buyers for Teen in early 2001, originally claiming a deal valuation of $80 million to $100 million and then halving its asking price, to no avail.