Meredith under pressure

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Sale chatter once again swirls around Meredith Corp.

It reached such a crescendo last week that CEO William Kerr felt compelled to issue a memo-albeit an opaque one-Feb. 1 to Meredith staffers on an internal company Web site stating its no-comment policy on rumors.

The memo hit one day after the company issued its earnings report revealing that due to softening ad results, Meredith expects profits to fall for its fiscal 2001 year ending in June. Also on Jan. 31, one of the company's largest institutional shareholders, Franklin Mutual Advisers, mailed a letter to Mr. Kerr demanding Meredith add board directors who are savvy in finance, investment banking or media.

Franklin Mutual, which aired these concerns in a Securities and Exchange Commission filing last week, also wants the company to separate its publishing and broadcasting operations, possibly with an eye toward a sale. "We ... do not believe that management has given sufficient consideration to various long-term strategic alternatives which would unlock value for all of the company's shareholders," reads one passage from the SEC filing.

Mr. Kerr's position in the memo to employees was a little different from the company stance to the public. "Our corporate position is never to comment on mergers, acquisitions, dispositions or changes in our corporate structure," the memo read. "I recognize that it may be frustrating or disconcerting at times, but ... we simply can't be drawn into commenting on every distracting rumor."

"I can't interpret a meaning one way or another," said the Meredith executive who read the memo

to Advertising Age. "A total no-


Doubters, however, may sniff non-denial in Mr. Kerr's no-comments.

Observers believe potential buyers include Bertlesmann, AOL Time Warner, Hearst Corp. and Readers' Digest Association. Typical sales multiples for publishing companies range from 12 to 15 times EBITDA-earnings before interest, taxes, depreciation and amortization-placing a sale price for Meredith between $2.8 billion and $3.6 billion, judging from EBITDA in 2000. Meredith's stock market capitalization on Feb. 2 stood at $1.8 billion.

Meredith's ownership structure should make sale rumors moot. Meredith's Class B stock has 10 times the voting power of common stock, and through substantial Class B holdings three family members- E.T. "Ted" Meredith III, 67, his daughter Mell Meredith Frazier, 44, and cousin Frederick B. Henry, 55-control well over 50% of Meredith's votes. Franklin Mutual holds less than 2%. Calls to Mr. Meredith and Mr. Henry went not returned or were referred to a company spokesman, who declined comment.

One high-level magazine executive at another company familiar with Meredith was convinced the sale talk was externally generated. "This is not the way they would do it," the exec said. "If they were going to [sell], the way to do it is to get a good investment banker and be fairly public. ... They're not going to go sneaking around."

Another exec familiar with the deal market said the concentration of votes among three individuals means a deal could be struck very easily. Times Mirror's sale to Tribune Co. in March 2000 began with overtures orchestrated by its founding family, the Chandlers, without the knowledge of company CEO Mark Willes. But two other media companies recently pilloried by non-majority shareholders or even dissident family members-Media General and Dow Jones & Co.-remain unsold, with the same CEOs at the helm as when the companies were under pressure.

Meredith's stock outperformed major market indices over the past year (see chart, left). Earnings fell to $40.4 million in the first half of fiscal 2001, down from $43.5 million in the year-ago period. Its broadcast division has resisted turnaround efforts, and Meredith is perceived to have overpaid for its underperforming Atlanta TV station, WGCL, in August 1998.

There's also a perception that-especially in broadcasting-Meredith's not big enough to play in a rapidly consolidating world. Given the virtual certainty of the Federal Communications Commission loosening cross-ownership rules regarding TV and newspaper ownership in the same market, bigger will only get, well, bigger.

Meredith "is at an in-between place," said Rudy Hokanson, an analyst with CIBC Oppenheimer, and precisely the kind of company investors pressure to get bigger or get out. Last year, for example, Tribune Co.'s broadcast division took in $1.3 billion; Meredith's took in $279.5 million.

Moreover, Mr. Hokanson said, the women's magazines that have served Meredith so well have softened, under pressure from a changing readership, changing economics, and category newcomers such as O, The Oprah Magazine.

"The wind has started blowing against them," Mr. Hokanson said.

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