Primedia undergoes shake-up

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For the past three Thursdays, New York-based publisher Primedia Inc. has found itself in the spotlight. First, Thomas S. Rogers resigned as chairman-CEO on April 17. A week later, Primedia announced that it had agreed to sell one of its flagship properties, Seventeen, to Hearst Corp. The price is $182.4 million for the magazine and affiliated properties, all of which had been on the market for several months.

Last Thursday, Primedia posted first-quarter revenue of $375.8 million, down slightly from $378 million in the same quarter last year. Cost cutting helped EBITDA (earnings before interest, taxes, depreciation and amortization) rise to $43 million in the first quarter, compared with $14.3 million a year earlier.

Primedia’s b-to-b segment, which includes Primedia Business Magazines & Media, publisher of titles such as Telephony, Fleet Owner and Beef, posted first-quarter sales of $73.5 million, down 9.1% from the same period last year. Cost cuts, however, helped boost EBITDA for the segment to $2.3 million in the first quarter from $900,000 a year earlier.

New Primedia Chairman Dean B. Nelson used the earnings release to dispel the speculation that Rogers’ resignation signaled that Primedia’s strategy has shifted to the large-scale sale of assets. "Regarding potential asset sales, there is no imperative to sell assets," Nelson said in a statement. "We always have and always will view selective divestitures as one of our levers to reduce debt and create shareholder value. Moreover, the fundamental way we are looking to drive shareholder value is through profitable growth of our operations." Nelson also said that president and interim CEO Charles G. McCurdy is a candidate for permanent CEO.

Immediately after Rogers’ resignation, unnamed sources quoted in The New York Times and The Wall Street Journal added to the rising tide of rumor by indicating that Rogers departed because he disagreed with Kohlberg Kravis Roberts & Co.’s decision to sell large chunks of Primedia. Private equity firm KKR is Primedia’s primary shareholder.

Some observers believe the leaks to the press were a canny strategy signaling interested parties to begin bidding on various Primedia properties, such as Primedia Business. "They carefully controlled what they said to get people to beat a path to their door," said Robert Crosland, managing director of media investment bank AdMedia Partners Inc., New York, referring to the stories in the Journal and Times.

Roland DeSilva, managing partner of New York-based media investment bank DeSilva & Phillips Inc., was more circumspect. "If they find that a focus on specialty consumer publishing will be accepted by the market and increase their share price, then the b-to-b part of the company will be divested. But it won’t be divested now. … Nothing is for sale, nor will there be for 18 to 24 months."

Despite Nelson’s protest, the speculation in the b-to-b world is not whether Primedia will sell this division but when and how it will go about it. Private equity firms such as KKR rarely hold media investments for more than seven years. KKR has backed Primedia since 1989.

Strategic players—companies ranging from Reed Business Information to Randall Publishing—may be interested, according to industry observers.

Robert Krakoff, chairman-CEO of Advanstar, acknowledged interest in Primedia Business’ telecommunications and motorcycle magazines. If any property were for sale, Krakoff said, "We’d take a close look at it."

Additionally, Ascend Media, which is located a few miles from Primedia Business in Overland Park, Kan., and is run by two former Primedia executives, Cameron Bishop and Ron Wall, may be interested in at least pieces of the division, according to industry observers. Bishop declined to comment.

Mike Wood, CEO of Hanley-Wood L.L.C., publisher of Builder and other construction titles, said his company might be interested in a handful of Primedia titles, including American City & County. "We just bought Public Works, and that would fit in with what we’re doing," Wood said. He said he had no interest in Primedia Business as a whole.

"No one would want to buy it all, but all would want to buy some," Crosland said.

However, some financial buyers may be interested in the whole of Primedia Business. No one foresees such a deal happening quickly, because the unit, a victim of the lingering b-to-b recession, has depressed EBITDA. Additionally, the moribund mergers and acquisitions market is holding down multiples. In short, it is a bad time to sell.

"As the economy stabilizes and the growth comes that is expected in the second half of this year, Primedia Business, with its streamlined assets, will benefit from the market rebound," said Wilma Jordan, CEO of media investment bank Jordan Edmiston Group Inc., New York. Primedia Business will be worth more in the future, she said.

Currently, Primedia Business is a division in turmoil. Since January 2001, it has cut about 600 jobs. Recently, CEO Tim Andrews and several other Primedia Business executives left the company. Some observers interpret the moves as efforts to pare top management salaries to make the division more attractive to a buyer.

Others see the moves as dangerous to a division suffering from low morale. One industry observer, who declined to be identified, said that Primedia Business’ value may be even lower in a year’s time, because the company has lost so many publishers and senior managers that its "legacy knowledge" has deteriorated.

Sheree Johnson, senior VP-director of media services at Kansas City, Mo.-based advertising agency NKH&W Inc., which has often bought space in Beef and other Primedia Business magazines for agricultural clients, said she has yet to see any Primedia publications suffer in terms of circulation or editorial quality.

"What goes on at the corporate level impacts the publications from a morale standpoint and maybe from a lack of resources, and we have to keep our finger on the pulse of that," Johnson said. "As long as they have editors dedicated to serving their readers and are putting out a product that is going to appeal to advertisers—our clients—I wouldn’t have any hesitation in using them."

While most observers believe that Primedia Business is for sale, KKR may not be in any hurry to sell it, either as a whole or in pieces. In the past, KKR and Primedia have proved patient and adept at selling properties, such as Modern Bride and Bacon’s Information, for good prices.

"So far, their divestitures have been at very favorable multiples," Crosland said. "They’re clearly only a seller when the price is right."

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