Time Inc’s narrow buyer list – bankers

Provided exclusively by Mergermarket

As Time Inc. [NYSE:TIME] hires bankers to field potential interest in the company, the pool of potential buyers looks extremely narrow, three sector bankers told this news service.

On 28 November, the New York Post reported that New York-based publisher Time had turned down a buyout offer of USD 18 per share from Edgar Bronfman, Jr, who had teamed up with Len Blavatnik’s Access Industries and businessman Ynon Kreiz to launch a bid. The Wall Street Journal reported on Thursday that, in response, Time had hired Morgan Stanley and Bank of America to explore interest in either an acquisition or a partnership.

Prior to Bronfman’s bid, Jana Partners reported a roughly 5% stake in Time. The Post reported on 6 September that Jana’s Barry Rosenstein had held discussions with Time’s management.

Spun off from former parent Time Warner [NYSE:TWX] in 2014, Time had previously held talks with Des Moines, Iowa-based TV broadcaster and lifestyle publisher Meredith [NYSE:MDP] about a possible deal, both before and after its spin. Ever since, Meredith has been seen as a natural suitor for Time, possibly in a deal that would allow it to combine Time’s assets with its own publishing assets and separate them from its publishing business, the first banker said.

However, in a presentation at the 44th UBS Global Media and Communications Conference in New York this week, Meredith CEO Steve Lacy told attendees that he has not held meaningful talks with Time since the initial explorations of a deal.

All three bankers said that Meredith has made clear that it is only interested in the parts of Time’s portfolio that would fit with its largely female-oriented lifestyle brands, and is uninterested in titles like Sports Illustrated.

Asked on the sidelines of the UBS conference if Meredith would be interested in acquiring those parts of Time’s portfolio in a deal that involved another buyers taking the remaining titles, Lacy said that the opportunity for such a deal has never arisen.

Bronfman is seen as a serious bidder capable of consummating a deal, a media industry stalwart who acquired and turned around Warner Music Group before selling it to Access Industries, the bankers said.

The other natural strategic buyer for Time would be Hearst Corporation, two of the bankers said, though both noted that it is unlikely to chase Time given that it has pivoted to investing primarily in digital and studio properties. Condé Nast is the remaining publishing peer of similar size, but has not shown itself to be an aggressive consolidator, the second banker noted.

While these buyers could leverage obvious synergies, Time’s traditional business has deteriorated, and building the case for acquiring significant additional old media assets in the middle of a digital turnaround strategy is difficult at best, two of the bankers noted.

In 3Q16 results announced on 3 November, Time said that revenue in the three months to 30 September came in at USD 750m, down from USD 773m in the year-ago quarter and missing analyst estimates. However, digital advertising revenue did grow 63.3% to USD 129m.

As for potential sponsor buyers, the third banker said that, while many players see the potential opportunity for and have run the numbers on a deal, Time as an asset is not friendly to significant leverage. The second banker agreed that financing a traditional private equity deal for Time would be extremely difficult.

It is also unclear whether Time would be an eager seller, the bankers said. CEO Rich Battista stepped up to the top spot at the company after Joe Ripp stepped down in September, and has had little time to execute on his vision for a digital transformation of the company.

One long-shot possibility is that a technology or telecom behemoth could acquire Time, primarily for its intellectual property, which could be reworked into tentpole content verticals on the acquirer’s platform, the second banker said.

This banker pointed to Verizon’s [NYSE:VZ] acquisitions of AOL and Yahoo’s [NASDAQ:YHOO] core business, which saw the telecom company acquire significant, high-visibility media properties that provide inventory against which to sell ads. The acquirer would have to be of such a size that Time – with a current market cap of USD 1.76bn – would be a “rounding error”, since acquiring it for this purpose would be a “highly speculative” play, the banker cautioned.

“As a matter of policy, Time Inc. does not comment on speculation about such matters,” a spokesperson said.

by Jonathan Guilford

As seen in the mergermarket newsletter on 09/12/2016