The U.K. company released disappointing financial results last week and ousted CEO Kevin Hand, who was replaced by former CEO and non-executive Chairman Robin Miller. So the delay-bids were originally due mid-May-is understandable.
For the fiscal year ended March 31, Emap USA's profits fell 25% to $39.7 million, and revenue was off 7%, falling to $360.1 million. Were it not for favorable dollar valuations, the company said, revenue would have been off an additional $28.4 million and profits off another $4.3 million.
Additionally, the company wrote down $773 million on its U.S. operations. That leaves the company valuation of its U.S. operations-including the U.S. edition of men's magazine FHM, which is not for sale-at around $727 million, as calculated from its initial purchase price of $1.5 billion, which included the assumption of $300 million in debt.
"If we can't establish the fair market value, then we won't sell it," said Tom Moloney, the CEO of Emap USA, who was just named chief operating officer of the entire company. "Since we took the write-down and Kevin [Hand] left, there's no more suspense. Just whether the buyers are serious."
How serious is serious? Though executives associated with the parties perceived to lead the hunt-Primedia, American Media, and former Primedia CEO William Reilly-either did not return calls or declined comment, those familiar with the process believe bids will top out in the $600 million range. For Emap to sell at that level would imply valuing FHM's U.S. edition at $125 million, which observers would find mind-boggling. Other Emap titles include Motor Trend and Teen.
The $600 million figure represents about 10 times earnings before interest, taxes, depreciation and amortization as forecast in Emap USA's projection for 2001, according to executives who are familiar with it. Emap USA's year-end profits-not the same as EBITDA-of $39.7 million do not leave bidders confident that the $60 million figure will be hit in a tough year.
Besides the potential bidders named above, an executive involved in the sale process said others, including Gruner & Jahr USA and former Hearst Magazines President and Petersen Vice Chairman Claeys Bahrenburg, have looked at the titles, as has AOL Time Warner. G&J's bidding interest fell significantly short of the current level. Mr. Bahrenburg did not return calls for comment.
One industry veteran familiar with the sale process expressed doubt that the company would pull the titles off the block if the price isn't right. The executive said that holding properties that have proved to be such a liability could depress the stock price over the long term.
Mr. Moloney refused comment on the names or number of bidders, but said there's "a higher level of interest" than has been reported.
His other comments won't encourage shareholders should the company retain the properities. Emap USA's core business, he said, is a "slow-growth" one. "To accelerate [growth], we'd have to be prepared to invest in more big launches or acquisitions, and we can't do that at this time."
Steve Parr, president of Emap Active-Emap USA's extreme sports unit-was named president of Emap USA late on June 1, and will help shepherd the sale.
The interest for observers, meanwhile, lies in watching how the Primedia-Reilly competition plays out. "I think [Mr. Reilly] will go as high as he possibly can," said a source familiar with Mr. Reilly and the company he co-founded. "Revenge. It's got some drama to it."
Mr. Reilly had a non-compete agreement with Primedia when he left the company in 1999, but observers believe he can buy or otherwise negotiate his way out of it.