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Primedia: Shoot This Dog

10/22/05

Back in 1982, National Lampoon published one of the most famous covers in magazine history, “If You Don’t Buy This Magazine, We’ll Shoot This Dog.” Nearly 25 years later, the spectacle of tottering print media conglomerate Primedia brings that cover to mind.

Last May we wrote a hopeful blurb about how divestments of Primedia’s eclectic portfolio of publishing properties seemed to be picking up steam. Hopeful because since its founding in 1989, the company has racked up cumulative losses of $3.5 billion while its shares have declined from around $12 to today’s new low, $1.88, all this while staggering along under $1.6 billion in debt and lately with only $7.5 million in cash. The company needs to sell the magazines then shoot the dog.

But, with two recent exceptions (the sale of About.com and Primedia Business Business Information), finding buyers willing to pay prices that would permit graceful exit has apparently proved elusive, we think partly because of a touch of Primedia arrogance: in many cases the company has advanced rich value expectations for the businesses it put on the block and in general has been unwilling to unbundle its properties, then sell them in more logical groupings, or if necessary, one by one. Who wants to buy the same money-losing collections that a succession of Primedia managers has been unable to fix?

Primedia’s recent sharp stock decline is reaction to the news of yet another management succession and the fact that the company is considering splitting itself into two separate entities: an apartment, auto and new-home buyers guide publisher, and the slower-growth special-interest magazine and education divisions.

Such a decision exposes the barrenness of Primedia’s core strategy -- aggregating mostly disparate publishing properties for economies of scale. That's news shareholders may not like, but to us, it's not news: this strategy never worked and most likely never will. Finding scale economies among media properties addressing unrelated markets is notoriously difficult. It's even difficult to realize savings by lashing together differing types of media (e.g., magazines vs. newsletters vs. cable TV, etc.) that talk to similar markets, as McGraw-Hll found. (That said, to be fair, Primedia is also facing a problem not anticipated back in the Eighties: the competitive heat that digital information alternatives are bringing down on traditional print magazines.)

The stock dive may also reflect a recognition that splitting the company in two says prior divestment efforts have been largely unsuccessful, and that what we have now is a subdivision into more synergistic groupings as company managers finally get serious. But getting serious means that the separated companies must together realize an M&A value exceeding the $1.6 billion long-term debt bogey. It's that or liquidation, since finding more cash via external sources would be, ah, unlikely. Right now the company's market cap is about $525 million.

Our thought is, as low as today's stock price may look, short it. While, amazingly, company managers continue to buy media properties with four transactions so far this year, Primedia's grand experiment in the value of mass is coming to a close.


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