HEF REVEALS LONG-TERM SUCCESSION STRATEGY

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To maintain family control of Playboy Enterprises after his death, founder and chairman emeritus Hugh M. Hefner plans to consolidate management power in the hands of daughter Christie, but eventually to shift control of his 70% voting stake to his two young sons.

If Mr. Hefner's estate-planning scenario succeeds, Ms. Hefner, who turns 45 this week, would continue her rule as chairman-CEO for the foreseeable future. But she will never have the authority of majority ownership that her father has enjoyed.

In a wide-ranging interview

with Advertising Age, Mr. Hefner, who has been in good health since a 1985 stroke, explained the eventual disposition of his stake upon his death.

"It will go probably to the family, unless things change . . . and probably through this side of the family," he said. "In other words, Christie will continue to be in charge of the management of the company, but that support from an ownership end will probably come from here. Because the continuity will come more logically from the next generation, with the boys."

The boys are Marston, 7, and Cooper, 6, Mr. Hefner's sons by current wife and former Playmate Kimberly Hefner.

LONG-TERM TRANSITION

Mr. Hefner envisions a long-term transition in power. During an interim period after his death, he said his shares would be controlled by several unidentified trustees. Those trustees are "people selected by me . . . who won't have an ax to grind," Mr. Hefner said.

"Christie will receive the same support after my death as she does now. I'm looking for continuity. I want to avoid the notion there will be any kind of divisiveness," he added, noting, "I view the company as my other child" and wouldn't want it broken up by a family dispute.

When Ms. Hefner departs the company, Mr. Hefner said ownership control would be transferred to his young sons.

According to Ms. Hefner-Mr. Hefner's daughter from a previous marriage-both she and her brother, David, 41, who is not involved with the company, are beneficiaries of the trust, along with Kimberly and her sons.

'VERY COMFORTABLE'

"In terms of control, I'm going to run the company as long as I want to run the company," Ms. Hefner said, adding that she was "very comfortable" with the succession plan. "The boys are obviously a third generation."

Succession issues always are a major problem for family businesses, especially in the case of a highly visible, closely held public company such as Playboy.

If Mr. Hefner's arrangement works, it may prove to be a deft bit of estate planning.

Because of the three-decade difference in his kids' ages, it would have been difficult to hand the company directly to the latest generation of Hefners without causing problems for Ms. Hefner, who controls just 1.5% of the voting stock.

Under Ms. Hefner's leadership, Playboy has gradually improved its once-chaotic operations, shed money-losing businesses and invested in promising TV-related ventures.

Playboy's non-voting Class B shares, which traded in the $4 range as recently as 1990, have traded in the $10-to-$16 range this year, hitting a record high of $16.68 in mid-October.

The stock fell 68cents Oct. 30, to $14.07, after announcement of flat earnings for the fiscal quarter ended Sept. 30.

MORE VALUE POSSIBLE

Any change in control, some analysts note, could result in Playboy's being put up for sale someday, which could unlock even more value in the stock.

"If it went to the boys, my guess is it would eventually be sold. It's worth significantly more than it's selling for in the marketplace," said Mark Boyar, a large Playboy shareholder and president of a New York money management company that bears his name.

Mr. Hefner, during the interview, said he thinks Playboy's stock "is moving very nicely" but is "definitely undervalued."

Asked whether he would consider taking the company private again, he noted, "We've thought about it. There are advantages both ways." There are no current plans to do that, he added.

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