Sale talks dog Meredith as it works through slump

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As the Eastern proverb goes, Meredith Corp., owner of 12 broadcast stations and blue-chip magazine brands such as Better Homes & Gardens, is living through some interesting times.

Newly installed publishing group President Stephen Lacy is well aware of the challenges. He's working with Meredith veteran and magazine group President Jerry Kaplan to improve the publishing division's performance by bringing on line a corporate solutions unit for cross-media sales and strengthening its sales presence in Detroit.

"We may have lost a little focus from the sales point of view," Mr. Kaplan said. "However that's relatively easy to fix."

A cross-media sales strategy may help knit together a company some believe should come apart. Last quarter, along with virtually all other media companies, Meredith earnings and revenues declined. Though the company touts improvement in its troubled recently acquired broadcast station, Atlanta's WGCL, analysts observe the broadcast properties continue to significantly underperform despite being located in key growth markets of Atlanta, Phoenix, Las Vegas and Orlando.

Despite those issues, though, its stock price closed May 10 at $37.49-barely off its 52-week high of $38.97.

"It reflects speculation the company might separate its assets," of broadcasting and publishing, said analyst Leland Westerfield of UBS PaineWebber. Observers say a whispering campaign of deal talk is fueled by companies lusting after portions of Meredith's portfolio.

Investors are more blunt. "Should you have broadcast and publishing together? That's one of the things they need to consider," said David Winters, director of research at Franklin Mutual Advisers. Mr. Winter's firm earlier this year filed comments with the Securities & Exchange Commission recommending Meredith split the assets, as well as take other potential actions to bring to the "surface the underlying value" in the assets.

When asked about other investor-side concerns that as a publishing pure play, Meredith might lack the bulk to cut it in the marketplace, Mr. Winters said, "Then you have other questions: Should they even be a public company?"

A Meredith spokesman declined comment on all deal suggestions. On Feb. 1, Meredith CEO Bill Kerr posted a memo to Meredith employees on an internal Web site saying company policy is "never to comment on mergers, acquisitions, dispositions or changes in our corporate structure ... we simply can't be drawn into commenting on every distracting rumor."

On a certain level, the sale talk is academic. Three Meredith family members control well over 50% of shareholder votes. There's no indication, public or private, any sale is brewing-although the family is believed to be more attached to publishing than broadcast.

That does little to stop speculators. Frequently mentioned sale or partner targets on the publishing side include Gruner & Jahr USA Publishing, American Media and Hearst Magazines. Arguably the most intriguing partnering-with Reader's Digest Association-looks unlikely, with a recently ended database effort considered a disappointment.

Federal regulations governing broadcast ownership-involving caps and rules concerning newspaper owners and TV stations in the same market-are widely expected to be loosened in the not-too-distant future. That's expected to spike broadcast valuations significantly.

Which could make for increased valuations or, following a sale, a nice dividend to shareholders-but then leaves the company with a publishing unit that made $817.7 million in revenues last fiscal year. The company as a whole had revenues of $1.1 billion.

Earlier this year, the publishing division closed two magazines, Family Money and Mature Outlook.

However, the company remains optimistic about others. Traditional Home and Country Home are increasing frequency next year, according to Mr. Kaplan.

"Magazine companies have a tough time being publicly traded," said Rudy Hokanson, an analyst with CIBC Oppenheimer. News-paper companies throw off cash flow via a steady stream of daily products; magazines don't.

That's true even when the magazines are classic brands-Better Homes & Gardens along with Ladies' Home Journal, accounts for 37% of the women's service category's ad revenues, according to Publishers Information Bureau data cited by executives.

Those lending credence to, or wishing for, sale or partnerships point out that, regardless of voting structure, every company has a fiduciary responsibility to its shareholders-and that no family wants to see a reversal of fortune. Yet a source familiar with deal markets pointed out that in practice, if a shareholder suit were ever brought against the company, courts-should it come to that-have not been particularly hospitable for aggrieved shareholders.

"If management does a really stupid thing, then they still have the defense: `We are just stupid,"' said an executive familiar with the media deal market, speaking generally about such potential suits.

Thus the market, the family, and Meredith investors are locked into wait and see, as several factors that could influence Meredith's situation-the ad economy, as well as the status of cross-ownership regulations-slowly play themselves out.

"It's a very interesting situation," Mr. Winters said. "They made a mistake in Atlanta, and they know it. They don't want to make any more mistakes, I don't think."

Contributing: Laura Q. Hughes

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