Playboy magazine’s publisher has agreed to accept a sweetened buyout offer from a partnership headed by founder Hugh Hefner, allowing the original playboy to fulfill his plans to take the Playboy Enterprises Inc. private.
The printed Playboy magazine has strived with rivals from the Web and has lost both advertisers and readers. In November 2010, the Playboy Enterprises Inc. reported a wider third quarter loss than a year ago as its revenue fell 7 percent to $52.1 million.
To stop this bleeding condition, the management of Playboy has been trying to make important transformation such as driving the company’s core business from a TV business and publishing into a "brand management" company, leaning more on revenue from licensing out the Playboy fancy-name and bunny ears for a range of products, such as g-string underwear, bra, bikini, c-string underwear, lingerie, transparent underwear, handbags, sunglasses and etc.
Hefner is Playboy's largest shareholder with about 70 percent of Playboy Enterprises Inc.'s voting shares and 28 percent of the nonvoting stock. By leading a buyout for a larger portion, the 84-year-old known for his penchant for pretty young blond girls and silk pajamas is betting that the racy magazine he launched in 1953 can still reap profits in the digital age.
Hefner, who serves as the magazine's editor-in-chief and chief creative officer, said: "I believe this agreement will give us the resources and flexibility to return Playboy to its unique position and to further expand our business around the world."
Hefner-controlled Icon Acquisition Holdings LP is offering $6.15 a share for Playboy, an 18 percent premium over Friday's closing price. Shares rose 89 cents, or 17 percent, to close at $6.09 on Monday. The Playboy’s stock has been traded in the 52-week range of $3.04 and $6.10.
The accepted bid values the Chicago-based company at about $207 million and tops Hefner's offer of $5.50 per share in July, though it's just shy of an offer made by a group led by Penthouse magazine that's valued at $210 million.
As part of the deal completed Sunday night, Scott Flanders will remain Playboy Chief Executive Officer and keep what the company called a "significant" equity investment in Playboy, the company said. Icon Acquisitions is paying for the purchase with equity commitments from Rizvi Traverse, a private investment firm, and a debt commitment from Jefferies & Co.
In an e-mail message, which is referring to Playboy's decision in 2009 to outsource the magazine's business functions, except editorial, to American Media Inc., and its deal with IMG Worldwide Inc. to oversee licensing in Asia and Europe, Flanders said the deal has several advantages. He wrote, "One, we are a small company and a partnership with Rizvi Traverse does for our capital and management structure what AMI and IMG did for our operations."
According to Flanders, the decision to go private will also eliminate the costs of being a public company and allow Playboy to take a long-term view and focus on what is best for Playboy’s businesses and not on the near-term earnings demands of Playboy’s public shareholders.
Playboy has said that a group of board members had been evaluating Hefner's offer and decided to support the deal to shareholders. A tender offer is expected to begin by Jan 21, 2011 and the deal is expected to close by the end of the first quarter 2011.
Currently, Hefner is facing a big task to turn around Playboy Enterprise Inc. into a cash-generating machine. Playboy's most popular years are well behind it – Playboy magazine enjoyed its heyday in the 1970s. Nowadays, Playboy faces tough and rough competition that ranges from other men's magazines such as Maxim to far racier content available on the Web without charge. In recent years, Playboy has found it difficult to lure advertisers and readers as the Internet supplants print as the top purveyor of adult materials content. Falling revenue has forced several rounds of layoffs at the company since three years ago.
Marc Bell, the CEO of Penthouse owner FriendFinder said: "needs to be run like a 21st century company." Therefore, it was not the era of the paper-magazine – yet, this is the era of paperless, the era of digital – on the Web and on mobile devices.