Will Keep 'Teen,' But May Sell Other Titles

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NEW YORK ( -- As expected, on Monday Primedia announced an agreement to purchase Emap PLC's legendarily troubled Emap USA portfolio of over 60 magazine titles.

The deal

is valued at $515 million, with Primedia shelling out $505 million in cash and approximately an additional $10 million in warrants for Emap PLC to purchase 2 million shares of Primedia stock.

Late Friday evening, Tom Moloney, former Emap USA CEO and current Emap PLC COO said, "In the current market, that would be a very good price, don't you agree?" The deal was first reported Friday evening on The Wall Street Journal's Web site.

Primedia said the deal will be financed by debt and sales of assets the company deems non-strategic, although in conference calls the company held Monday with analysts and reporters, Primedia CEO Tom Rogers repeatedly declined to specify which assets would be sold off.

Keeping Teen alive
But Mr. Rogers did pledge to keep Emap's flagging Teen magazine going, saying it provided a bridge for younger teen readers to Primedia's stronger Seventeen, which, he said, had a median reader age matching that of the title.

The sale process for Emap USA was handled by Morgan Stanley Dean Witter. The company had sought bids in the $600 million range. Spurned suitors in the deal were David Pecker's American Media, publisher of the National Enquirer and Star, and financial player Texas Pacific Group. The reaction to the deal price was generally positive. Two executives who had evaluated the titles for other companies had valued Emap as being worth around $450 million.

Mr. Rogers, slightly raspy-voiced from laryngitis, said the purchase price was 11.2 times Emap USA's last 12 months of EBITDA -- earnings before interest, taxes, depreciation and amortization -- of $46 million. Mr. Rogers projected the unit would post EBITDA of $62 million in 2002, which, he said, would mean the deal was 8.3 times next year's EBITDA.

Integration challenge
While Primedia's constellation of niche titles matches up nicely with key segment's of Emap's, particularly in the automotive arena, the Emap portfolio complicates what has been one of Mr. Rogers' key challenges at Primedia: successfully integrating its vast array of small titles. Judging from Primedia's stock price of $7.02 in midday trading today -- up from its pre-deal price Friday of $6.79 but substantially off its 52-week high of $22.31 -- Wall Street has not been convinced of his efforts.

But Mr. Rogers disputed this notion, and said the company's integration efforts would become more apparent in the latter half of 2001 into 2002.

Rocky experience
Emap's experience with Emap USA was a rocky one. In May the company wrote down about $770 million on the unit. For the fiscal year ended 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 eyar, the company had been shopping Teen.

In detailing the deal to stock analysts, Mr. Rogers also lowered Primedia's guidance for 2001 EBITDA from $325 million to between $280 million and $300 million, saying that to achieve the $325 million figure would require taking "cost actions that would significantly impair our ability" to quickly integrate the Emap acquisition.

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