I don’t think in all my time covering the magazine industry that I’ve seen such a volcanic outburst of anger than that of current and former Cygnus employees at the recent management decision to cut salaries across the board and reduce the workweek from 40 hours to 37.5 hours.
The Folio: blog had a slew of responses, as did Paul Conley’s fine posts on the topic. I got a bunch of e-mails from a variety of sources, most of them seething. I don’t have any idea what’s causing the extraordinary frustration at Cygnus. I don’t know Carr Davis and Tony O’Brien, though they spoke at our conference in March. I know Royce Yudkoff and Peggy Koenig at Cygnus owner ABRY Partners fairly well. ABRY also owned a controlling share in Penton Media and has been around the media business for a long time. It’s a serious private-equity player, a heavy hitter.
Late last week, there was word that the co-CEOs were explaining the moves to the rank-and-file and conducting town hall-style meetings via conference calls. In a recording of one those meetings obtained by Folio:, employees seemed largely concerned with taking on more work for less pay, whether the cutbacks were long-term or short-term and whether there would be any incentive after all was said and done. One employee on the recording noted that this was the third pay cut in five years. Referring to the 1.8 percent growth rate the company has achieved, O’Brien, who led this particular meeting, said, “That growth rate, given the dynamic business that we’re in, particularly on the interactive side, was disappointing to us and, frankly, was disappointing to the folks at ABRY.”
We’ll see how this plays out. Maybe it will have completely blown over in six months. Maybe in a year, the company will have been sold successfully.
And that, some sources speculate, is behind the cost-cutting to begin with. Word in the financial markets is that top management at Cygnus is under tremendous pressure to hit its budget projections. Cutting salaries is an avenue to achieve short-term results. The company, a source told Folio:, is totally focused on putting up a strong EBITDA performance in 2007 to set up an exit for ABRY in 2008. ABRY tried to sell last year, unsuccessfully. It parted ways with its then-CEO, Paul Mackler, and brought in O’Brien and Davis to drive e-media growth. Says one source: “I figure they would like to exit asap, but their target would likely be about two years after pulling it off the market, or sometime next summer or fall. Therefore, EBITDA for full-year 2007 would be the base number from which they sell. The irony is that savvy buyers, who will do proper due diligence, will realize that the numbers for 2007 are fictitious, not reflective of sustainable, normalized expenses for the business.”