Emap's stateside stint was "disappointing, to put it mildly," said Derek Terrington, a media analyst with London's Credit Lyonnais. One American industry executive puts it slightly differently, calling Emap's American experience "the biggest disaster to happen to an acquirer of magazines in some time."
"They did try to expand in one big leap, in contrast with their former patterns of expansion into non-British markets," Mr. Terrington said.
The big leap, meanwhile, is being employed once more by Primedia Chairman-CEO Tom Rogers. The Emap deal brings some focus to Primedia's constellation of 200-plus wildly diverse, mostly niche magazine titles. Primedia significantly strengthens its position in the auto enthusiast space, adding Emap's 23 auto titles including Motor Trend and Hot Rod to its own Automobile and niche specialty division McMullen Argus' 29 titles. And to hear Mr. Rogers tell it, the acquisition allows the company to shift readers from Emap's young-reader title Teen to Primedia's older-skewing Seventeen.
But it also adds to Mr. Rogers' key challenge since becoming CEO in 1999: integrating the portfolio into some coherent whole. The company is still digesting its February acquisition of enthusiast Web site About.com.
"The market would like to see [Mr. Rogers] focus a little bit more," said Mandana Hormozi, an analyst with Lazard Freres. "I would still consider Primedia to be a hodge-podge of assets. ... The problem with Primedia is the strategy is unclear. No one knows what's core."
Mr. Rogers said the company's integration would become clearer over the next two quarters. Further focusing is expected to occur in the wake of the deal, as Mr. Rogers said Primedia plans to sell about $250 million worth of non-strategic properties to partially finance it.
In conference calls with reporters and analysts, Primedia executives said Emap's titles will post $46 million in EBITDA-earnings before interest, taxes, depreciation and amortization-for calendar year 2001 and $62 million in calendar 2002. That means Primedia paid a multiple of 11.2 times 2001 EBITDA and 8.3 times next year's. The 11.2 multiple puts it on the higher end of recent magazine transactions. Primedia is paying $505 million in cash and giving Emap about $10 million in warrants to buy Primedia stock.
Emap had sought bids in the $600 million range. Discussions with some executives familiar with the deal strongly suggest bids dropped as the sale process went on.
Emap purchased the titles from current Ziff Davis Media chairman-CEO Jim Dunning and his partners Willis Stein & Co. in early 1999 for what was considered a wildly overpriced $1.5 billion in cash and debt.
Other bidders were David Pecker's American Media, which publishes the National Enquirer and The Star, and financial player Texas Pacific Group. Mr. Pecker, whose final bid was in the $470 million-$490 million range, lost out again on a group of male-heavy enthusiast titles. He was a finalist for the Times Mirror properties won by Time Inc. for $475 million last year.
Emap's experience with Emap USA was rocky. In May the company wrote down about $770 million on the unit. For the fiscal year ending 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. Also in May, Emap PLC's CEO Kevin Hand was ousted. Earlier this year, the company unsuccessfully sought buyers for Teen.
Unlike some American observers, Mr. Terrington saw nothing odd in Emap rewarding former Emap USA CEO Tom Moloney with the position of chief operating officer. "I think he took what we call a `hospital pass,"' chuckled Mr. Terrington. "Someone throws you the ball when you're standing in front of three heavy forwards. And they just obliterate you."