Past its Primedia?

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The abrupt, if seemingly inevitable, end of Primedia's twisty deal with Brill Media Holdings prompted more industry speculation about the company's future.

Essentially, that future hinges on the commitment of Primedia's majority owners-investment-banker Kohlberg Kravis Roberts & Co., which owns about 67% of its common stock-to the company and CEO Tom Rogers. The stock closed Oct. 19 at $1.76, barely above its all-time low of $1.70 and 95% off its March 2000 high of $34.88.

"KKR is supportive of the company and its management team," a KKR spokeswoman said. Executives at Primedia, which owns Internet company and publishes New York, Seventeen and a constellation of niche magazines, would not comment.

Primedia's woes trace to its being a heavily leveraged, comically complex company doing business in one of the worst media environments ever. Last year, Primedia took in $1.7 billion in revenue; Merrill Lynch projects its debt at the end of 2001 at $2 billion. Those numbers have raised questions about whether the company can service debt on cash flow alone. Mr. Rogers, in an e-mail to staffers, insisted it can. Earnings before interest, taxes, depreciation and amortization in Primedia's traditional media businesses will be around $300 million, he wrote; interest payments are around $145 million.

Merrill Lynch analyst Karl Choi said the current situation "doesn't mean they will have trouble paying their bills. But they might have to get some relief from the banks" on covenants concerning its debt. Mr. Choi said the complexity of Primedia's financial structure means that "under some circumstances, [Primedia] may have trouble" fulfilling such convenants. He expects total EBITDA, including Internet losses, to be $226 million.

Other industry executives, however, said earnings-and ad-page numbers-are not that simple to calculate. Financial filings in the wake of Primedia's acquisition of testify to a series of barter deals for ads valued at $29.3 million from late October 2000 through the end of 2001. Primedia has said that 60% of this figure ended up in its EBITDA. "They do not get cash from third parties in booking those revenues," Mr. Choi said.

Primedia's fate ultimately is in the hands of KKR, which holds its cards close. There has been speculation the company could be broken up and sold in pieces, since many believe the incongruous mix of its magazine and Internet properties would make it impossible to sell as a total package. (Some assets are already on the selling block.) Others believe that's not likely to happen in a weakened economy.

More on the collapsed Brill venture: QwikFIND AAM69Q.

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