Time Inc. Spurns Suitors to Go It Alone on Digital Strategy

(Bloomberg) -- Time Inc., the glossy-magazine publisher in turmoil and struggling to adapt to a digital world, decided to stick with its online strategy rather than sell itself after months of talks with potential acquirers.

Meredith Corp. and a group including Pamplona Capital Management and Jahm Najafi had been in the running to buy Time’s entire business, alongside at least two other suitors including one publicly listed company, Bloomberg reported in March. Time was said to be holding out for a deal that would have valued the New York-based company at more than $20 a share.

Meredith, seen as the most likely winner, formally rescinded its takeover offer on March 21, though the companies had remained in negotiations in the following weeks, according to a person familiar with the matter. The publisher of Better Homes and Gardens, Martha Stewart Living, Shape and Parents had earlier lowered its bid to $18 from $20, other people familiar with the matter said.

Shares of Time plummeted as much as 19 percent to $14.80 in New York Friday, the biggest intraday decline since at least 2014. Meredith fell as much as 8.9 percent.

Deja Vu

Meredith was seen as the most likely winner of Time, as a deal would have created hundreds of millions in operational cost savings.

This is the second time merger talks fell apart between Meredith and Time. In 2013, Time Warner Inc. Chief Executive Officer Jeff Bewkes decided to separate Time from the parent company instead of combining it with Meredith.

This time, the deal fell through because Meredith couldn’t secure financing, according to people familiar with the matter. Lenders felt the deal had too much debt given the lack of revenue growth in the publishing industry and the option of Meredith spinning off its more lucrative TV stations at a later date, the people said.

Citi was willing to finance the deal but forced Meredith to keep the broadcasting business, according to one person familiar with the matter. Representatives for Meredith declined to comment.

Time’s decision to spurn a sale to “pursue its strategic plan” ratchets up the pressure on Chief Executive Officer Rich Battista to transform Time Inc. from a fading print empire into a digital powerhouse.

In opting not to sell, Time is doubling down on a strategy designed to persuade advertisers to pour money into Sports Illustrated, People and other titles instead of web outlets like BuzzFeed and Vice Media. With its print advertising lifeblood draining away, the company has spent the past year expanding its online businesses and replacing senior management.

“We have a real opportunity to be aggressive in reengineering the cost structure of the company,” Battista said in an interview Friday. Though he declined to provide details on the plan, Battista said he is committed to retaining Time’s iconic brands, including Time, Fortune and Sports Illustrated.

Time has been on a buying spree of late to give its famous magazines more digital muscle. It bought MySpace because it still has a wealth of user data from when the site was a popular social-media platform that could be valuable for targeted advertising. The company also acquired HelloGiggles, a beauty and lifestyle website, to appeal more to younger women. It also recently launched an ad-supported streaming service focused on celebrity culture and live events.

“Like a lot of ink-on-paper publishers, they need to be able to get to a point where they demonstrate sustainable top-line growth,” said Barry Lucas, a research analyst at Gabelli & Co., said in an interview. “They’re close. I think it happens in 2018,” added Lucas, who has a buy rating on the stock. “Given the readership online and the trend in page views, they have at least a shot at doing that.”

Ad Sales

In recent months, Time has also reorganized how it sells advertising, creating more custom content for sponsors and making it easier for marketers to buy ads across its magazine portfolio. Such ads -- promotional content designed to look like editorial articles and videos -- have become the lifeblood of digital media companies.

Time’s strategic plan will “take some time to play out,” Wells Fargo analyst Eric Katz wrote in a note Friday while also downgrading the stock to market perform.

Meredith, ironically, could serve as a model. Though is not as reliant on periodical publishing, with broadcast TV stations reaching about 12 million U.S. households, the company’s digital-ad revenue have outpaced print declines, said Gabelli’s Lucas.

“It can be done,” said Lucas, who personally owns shares of Time. “Once you do that it changes how investors look at these businesses.”

Time plans to release first-quarter results on May 10.