(Not) For Sale

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Ever since Tom Rogers’ resignation in April as chairman-CEO of Primedia Inc., a firestorm of speculation has engulfed the company. Is Primedia for sale? Are certain assets for sale? If so, do they include elements of Primedia Business Magazines & Media, such as Telephony and American Demographics?

All the speculation boils down to a single question: What is Henry Kravis doing? As the co-founder of leveraged buyout firm Kohlberg Kravis Roberts & Co., which owns a controlling stake in publicly traded Primedia, Kravis calls the shots at the media company. (Kravis declined to comment for this story.)

With or without Kravis’ confirmation, many industry observers say that if Primedia Business is not for sale now, it will be on the block within the next two years.

Ascend Media, the new b-to-b media company run by three former Primedia Business executives and backed by JP Morgan Partners, acknowledged that it made an offer to buy the unit but was rebuffed. (See story, p. 11) And at least one other financial player has made a bid for Primedia Business.

In addition, Robert L. Krakoff, CEO of Advanstar Communications Inc., and Mike Wood, CEO of Hanley-Wood L.L.C., both said they were interested in specific Primedia Business properties.

"Everybody’s made an offer on Primedia," said Robert Crosland, managing director of AdMedia Partners Inc. "Find somebody who hasn’t. It’s like kicking the tires. You’ve got to ask."

In the wake of Primedia’s negative response to his company’s offer, Ron Wall, exec VP-sales at Ascend and former president of Primedia Business, said, "It’s not for sale. Put that on the record. There are no black books out there, no brokers out there, no rumblings of anyone hiring a broker."

Primedia Business’ former CEO, Tim Andrews, now CEO of the Advertising Specialty Institute, said, "I had no indication before I left that the business was for sale. And I believe I would have known."

The interim CEO of Primedia Inc., Charles McCurdy, said the company plans to continue operating Primedia Business, which, after several rounds of aggressive cost cutting, is poised to rebound with any general economic recovery. "That’s the main way that we, at Primedia Business, expect to create value for our shareholders," McCurdy said.

While McCurdy didn’t rule out occasional sales of b-to-b properties, his overall message was that Primedia intended to operate its 60 b-to-b magazines, 130 Web sites and more than 25 trade shows.

But against this backdrop, pesky leaks to the media continue pouring gasoline on the fire of speculation about possible sales of properties or whole divisions. The rumors began immediately with Rogers’ resignation in April. A story in the next day’s New York Times quoted anonymous sources saying that KKR planned to divest most of the company with the exception of the consumer titles.

Industry observers viewed the story as Primedia’s effort to start the sales process by encouraging potential buyers to make themselves known. "They’re cataloging interested parties right now," AdMedia Partners’ Crosland said.

More recently, another story in The New York Times featured anonymous sources saying that Primedia was preparing to sell New York Magazine. Industry observers viewed the story as an ad for the respected, mildly profitable publication.

"For them to create an auction frenzy when it’s not for sale, it puts them in a great position," marveled one b-to-b media CEO. "It’s brilliant. I wouldn’t be surprised if the leak came from Henry Kravis."

This CEO, however, said that while the tactic was a good one for a property like New York Magazine, it wouldn’t be as effective for b-to-b titles. "National Hog Farmer doesn’t have that kind of cachet," he said. "No one’s going to overpay for that."

There are several reasons why many in the industry assume that Primedia is preparing to sell Primedia Business in the next two years. The most recent clue was the dismantling last month of Media Central, the money-losing amalgamation of properties such as Folio: and American Demographics. McCurdy moved those two properties and a handful of others back under the control of Primedia Business.

The cost-cutting move eliminated more than 20 jobs. Among those ousted was Cable Neuhaus, who was brought in as editor in chief of Folio: last year. John MacManus, editorial director of American Demographics, now also oversees Folio:.

Other clues that Primedia Business’ EBITDA (earnings before interest, taxes, depreciation and amortization) are being fattened up for sale include the removal of a large layer of management. The unit has not been paying salaries for the CEO or president positions since the departures of Andrews and Wall earlier this year.

McCurdy said the company is looking at internal and external candidates for the CEO position. "I don’t have a time frame for you, but I’m confident we’ll find a strong leader for the company," he said. In the meantime, John French, senior VP-sales, has been acting CEO of Primedia Business.

The unit has cut deeply in areas beyond management, too. Since 2000, it has slashed more than 600 jobs—more than a third of its work force—as revenues dwindled.

Overall, sources say, Primedia Business’ EBITDA have dropped from $100 million in 2002 to an anticipated $30 million to $40 million this year. At its 2000 EBITDA level, Primedia Business would likely have been valued at more than $1 billion. In today’s depressed mergers and acquisition market, it might not fetch bids of a quarter of that price, analysts say, which is why KKR is unlikely to sell Primedia Business now.

"Primedia did a recent bond issue, refinancing some of its more expensive debt," said Hal Greenberg, managing director of Veronis Suhler Stevenson. "One of the key things to remember is that Primedia doesn’t have to sell anything. Their capital structure is pretty good."

Most observers say that Primedia will sell its b-to-b properties when a recovery takes hold. "If, over the next 18 months, they get the EBITDA back over $50 million, they might sell it at the end of 2004 or so," Ascend’s Wall said.

One former Primedia executive said that costs had been shorn so extensively that if a $50 million boost in revenue were to occur at Primedia Business, 80% of that would drop to the EBITDA line.

Perhaps then Kravis would pull the trigger on selling a business that his firm has held since 1989—an unusually long time for a financial player.

The last word on the subject for now? "If it makes sense, they’ll sell it," said Roland DeSilva, managing partner of DeSilva & Phillips Inc.

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