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Parent Company Bertelsmann to Sell All U.S. Titles

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NEW YORK ( -- German publisher Gruner & Jahr is calling it quits on its U.S. magazine presence, pocked in recent years with lackluster publications, circulation problems and a high-profile scratching and clawing match with publishing partner Rosie O’Donnell.
Four of G&J's family titles are being acquired by Meredith.
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In a $350 million cash deal announced this morning, G&J said it had agreed to sell four titles -- Family Circle, Parents, Child and Fitness -- to Meredith Corp., publisher of Better Homes & Gardens and Ladies' Home Journal. It’s also now looking for buyers for the remainder of its portfolio, the business publications Fast Company and Inc. As part of the transaction, G&J has until June 30 to exercise an option to sell those publications to Meredith, which would, in turn, sell them.

No. 2 publisher
The deal would make Meredith the No. 2 consumer magazine publisher with a combined circulation close to 30 million, the lion’s share of which are women. Time Warner's Time Inc. is the industry leader.

Meredith is reorganizing into three operating groups to help leverage the new titles with advertisers. One of these units, the Meredith Mass Reach Magazine Group, will be composed of Family Circle and Better Homes and Gardens, which together will offer marketers of packaged goods and household products close to 12 million subscribers, according to 2004 figures.

The deal also closes the book on a European publishing house’s journey in America, during which it and its stable of relatively staid magazines struggled to gain share against a host of more dynamic offerings from the likes of Time Inc. and Conde Nast Publications. More than anything, G&J’s time in the U.S. will be remembered for two things: a disastrous foray into celebrity journalism and its time as a poster boy for circulation problems.

Rosie O'Donnell fight
In late 2003, G&J had to fend off sustained public blows to its image as litigation raged with actress Rosie O’Donnell, with whom the company had partnered in 2001 to help makeover the venerable McCall’s. The legal firefight over Rosie, which ended up with all claims being dismissed, began when Ms. O’Donnell walked away from the venture in September 2002, despite the fact that the title enjoyed some success.

Among the dirty laundry aired during the trial was G&J’s exaggeration of circulation figures, a bombshell that led to the resignation of the company’s circulation chief and that was often cited as a factor in the January 2004 ouster of G&J USA CEO Daniel Brewster, whose tenure was also marked by the $360 million acquisition of new-economy magazine Fast Company -- right before the dot-com bubble burst.

The problems with circulation continued to plague the company. Just months ago, G&J revealed that several of its titles would fall below guaranteed circulation levels, causing it to sue a circulation agent.

Sold titles
Among the titles to be sold, only Fitness posted circulation growth last year, rising 4% to 1.49 million subscribers. Child lost 15.8%, falling to 790,339; Family Circle lost 10.6%, to 4.1 million; and Parents was down 4% to 1.9 million.

Meredith's chairman-CEO, Bill Kerr, acknowledged the circulation issues in a conference call, saying, “They’ve experienced some weakness recently, largely caused by poor circulation practices. We believe we have exactly the right skills needed to restore their luster.” Meredith expects the deal to generate earnings before interest, taxes, depreciation and amortization in the low-to-mid $30 million range and increase the publishing group’s revenue $300 million to $1.2 billion.

G&J CEO disappointed
Despite the company’s woes, G&J USA CEO Russell Denson, tapped a year ago as Mr. Brewster’s replacement, said he was disappointed by the move. “I had enjoyed the last year and I thought we’d made great progress and I thought we looked forward to a substantially improved or even an outstanding 2006,” he said.

Mr. Denson said his future is uncertain and that, beyond the transition, he has no plans with G&J or Bertelsmann, its parent company.

“I’ll go home and rest and relax and spend time with the family and, as I like to jokingly say, clean out my garage, and somebody invariably calls with some idea,” he said.

Fate of staffers
It’s unclear how many of G&J’s staffers will be hired on by Meredith. In the conference call, Meredith executives said that employees working in creative, sales and marketing capacities, rather than support functions, are most likely to be taken on board.

Although rumors have long circulated about G&J’s commitment to the U.S. market -- especially when it sold teen title YM to Conde Nast last year -- yesterday’s deal caught some off-guard. Just two weeks ago, the company announced a big new hire, former American Media executive Carolyn Bekkedahl, as executive vice president and group publisher. Asked when he was informed of the deal, Mr. Denson said he was “told very recently,” declining to give a more specific time frame. He said, “I would not have hired Carolyn if I had known.”

Ms. Bekkedahl could not be reached for comment.

G&J expands in Europe
A press release from G&J’s Hamburg headquarters said the company will focus on its European operations. Last month, the European Union approved a deal in which G&J, which already owns more than 125 print titles, including Stern and Geo, acquired a majority stake in Motor Presse Stuttgart, which publishes 140 magazines that are market leaders in 16 companies.

In the release G&J's chairman, Bernd Kundrun, promised future acquisitions that necessitated some paring back. “We need to be disciplined, which means withdrawing from business activities that do not offer viable prospects for achieving either a leading market position or meeting our profitability requirements,” he said. “We no longer saw such a prospect for our magazine business in the U.S. and for that reason decided upon this sale.”

Following the deal, G&J’s U.S. operation will consist of the wholly-owned subsidiary Brown Printing Co., the fourth-largest printer of magazines and catalogs in the country, according to the company.

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