FOLIO: Section Blogs by M and A and Finance

What Went Wrong with Purpose Driven Connection?

Jason Fell — Thu, 05 Nov 2009 09:28:22 -0500

On Wednesday, Purpose Driven Connection—the quarterly published in partnership between Saddleback Church pastor Rick Warren and the Reader’s Digest Association—became the latest magazine casualty of 2009 as the groups decided to move the product online-only. Until September, RDA said the title, which launched in January, was still in “development stages.” After four issues it was never green-lighted for a full launch off the newsstand.

What gives? When RDA announced the launch late last year, it billed the agreement with Warren and Saddleback as one of the company's “most important and far-reaching ventures ever.” Yesterday, in a statement, Warren said “impressive reader feedback has prompted us to focus all our energies on our digital format so our content can be expanded, international and free.”

So, what about the print product? With a $9.99 cover price, was it a dud on stands? A RDA spokesperson called sales figures “encouraging,” especially at outlets like Wal-Mart, but said the company wasn’t releasing specific numbers. He told me the magazine failed to generate enough full membership buys—$29 for the quarterly magazine, DVDs with each issue, study guides and access to its Web site. Those packages were offered by the church to its immense membership base.

In other words, the lack of interest in the full package, and subsequent lack of expected revenue made Purpose Driven Connection an unattractive business for RDA going forward. They made the decision to kill the costly print magazine, and agreed to host its Web site at least through the first quarter next year.

I asked the spokesperson directly if RDA considers the Purpose Driven Connection venture a failure. Of course he said it wasn’t a failure. From an operational point of view, he said that shutting down an otherwise interesting product that doesn’t meet financial criteria “is every bit as important as green-lighting others to go forward.” He also said RDA gleaned “proof of concept” insights into serving a community like Warren’s that’s bound by faith or philosophy.

“We believe that we could take this forward with a community that had a somewhat different characteristic—larger, more open to purchasing memberships, more universal, global, etc.,” the spokesperson said.

More open to purchasing memberships. That might be key.

This shouldn’t suggest, though, that Saddleback hasn’t had any success from the venture. The church said subscribers to the Daily Hope devotions newsletter have grown to 400,000 since Purpose Driven Connection launched early this year.

If not for monetary reasons, I think the loss for RDA is substantial, despite the positive lessons it says it learned from giving it a shot. It has to be tough, especially for a company that’s now steering itself out of bankruptcy, to watch a product it called one of its most important ventures ever fail after only four issues.

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Recession’s Winter

Jason Fell — Tue, 06 Oct 2009 15:52:06 -0400

It’s very quiet now, as the snow falls across the recessionary landscape. Though it’s only Fall outside, the inside of the b-to-b media business feels like winter. The private-equity players that got caught when the music ended with no chairs left to sit on or Greater Fools around to buy their roll-ups, are sitting in workout meeting after workout meeting with the banks and other lenders trying to scale back their debt and cut their losses.

The CEOs and top managers of these companies are gamely pulling in the remaining revenues for 2009. The cuts they made probably won’t be the last, but the Fall usually brings a few pleasant surprises, a few surplus budgets willing to spend. But they know what’s coming. We all know what’s coming: The turn of the year. Contract time. We all have No Idea What Will Happen.

Customers are being coy, playing their hands close, bravely saying they’ll be in next year but…we just don’t know. They see the media businesses are weak, reeling and ready to be taken advantage of. Next year’s business is the very quiet elephant in the room.

Gone is the talk of Second Life, podcasts, video and vertical search and all of the Next Digital Upsides. Yes we may all be doing some of these things and indeed online revenues are becoming a growing percentage of our businesses—but they’re smaller businesses. It’s quiet, cold and quiet, across the snowfields. We’re hunkered down. We’re waiting.

My hope is that the next 12 months will be the winter of our recession and that Spring begins to emerge for the survivors. But right now, looking to the November and December contract season for 2010, it’s very uncertain. And it gives me shivers to think about.
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Johnson Publishing Moving Away From Magazines?

Jason Fell — Mon, 28 Sep 2009 14:06:46 -0400

Magazine M&A has been rife with rumors and speculation over the last several weeks. One such report came from Newsweek on Friday, indicating that Chicago-based Johnson Publishing is shopping its flagship Ebony, the general interest African American magazine it launched in November 1945.

According to the Newsweek story, Johnson CEO Linda Johnson Rice—daughter of founder John H. Johnson—has approached a number of private equity firms and media companies, including Essence publisher Time Inc. and BET owner Viacom, about them buying the ailing monthly. Through the first half, the magazine saw ad pages tumble 34.7 percent, according to PIB figures.

I contacted a Johnson Publishing spokesperson this morning to find out the company’s stance. In an e-mail, the spokesperson wrote: “As we’ve indicated previously, we are exploring a range of options to support our core media business. However, we are not in discussions with Time Inc. and Viacom.”

OK, so Time Inc. and Viacom might not be in the picture, but the response doesn’t deny that Ebony is indeed on the block. If Johnson is hawking Ebony in an attempt to support its “core media business,” does that suggest the company is moving away from magazines?

Might Johnson consider selling its sister title Jet, too? It didn’t fare much better through the first half, with ad pages declining 39.5 percent. Earlier this month, Johnson pulled the plug on this year’s Ebony Fashion Fair—the company’s fund-raising annual traveling fashion tour—citing “overall economic challenges.”

Lots of publishing companies have struggled to stay afloat this year. The idea, however, of Johnson selling off its flagship magazine is one to make you take pause.
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In Bankruptcy, Reader’s Digest CEO, CFO Get Sweet Financial Packages

Jason Fell — Thu, 20 Aug 2009 12:37:52 -0400

According to documents filed this week with the Security and Exchange commission, the Reader's Digest Association—in connection with its reorganization plan—agreed to changes in CEO Mary Berner’s and CFO Tom Williams’ base salaries and severance payouts.

During the Chapter 11 process, Berner will be paid $125,000 per month in base salary. Meanwhile, Williams will receive $68,200 per month.

Multiplied out over 12 months, Berner’s new agreement would put her annual salary at $1.5 million. According to RDA’s last 10-K report, Berner in fiscal 2008 was earning a base salary of $600,000 (and was eligible for an annual guaranteed bonus of $500,000). That doesn’t include performance incentive bonuses that could have been as much as 400 percent of her base salary—although I’m sure they were nowhere near that much.

In case Berner isn’t offered her job back when RDA eventually emerges from bankruptcy protection, the company has agreed to up her severance package to $2.2 million, plus any earned but unpaid salary, vacation pay and/or unreimbursed business expenses. That’s up significantly from the $1 million severance package she agreed to when she signed on with RDA in 2007.

Williams agreed to receive a severance package worth $1.2 million.

Berner and Williams were smart. Even after putting together a pre-packaged plan of reorganization, you never know how things will shake out after taking it to a bankruptcy court, or if you’ll still have your job afterward.
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Trying to Make Sense of Magazine Closings

Jason Fell — Wed, 19 Aug 2009 09:16:06 -0400

The MPA wants to make a few things clear about the unfortunate string of magazine closures we've been experiencing.

It's the economy, stupid. That's not what they said, exactly, but they'd like to remind everyone that the readers are still there—it's the advertisers that are jumping ship. A data sheet posted on MPA's site in early August attempts to point out that consumer interest, via circ levels, is maintaining while advertising declines correspond with shutdowns.

Also, last year wasn't all that bad compared to other years. In fact, we didn't even come close to 2000-2001 levels.

The MPA cites closure metrics from Ulrich's Periodicals Directory. Apparently, there were 54 magazines closed in 2008, which is 11 less than 2007 and, interestingly, 50 less than 2006, which was the peak for mag closings after 2001.

None of this makes recent numbers any more tolerable, really. Closings and the subsequent job loss in any situation are horrible. But the MPA is attempting to take a big-picture view and attach the numbers to the economy rather than a specific loss of consumer interest, which would be really bad.

PIB revenue declines, for example, occurred only in recession years. ABC average circ dropped during these same periods, but by far lower percentages. Therefore, concludes MPA, advertising is the "dominant factor in magazine closings."

Yet looking at the Ulrich numbers only makes things more confusing. Yes, 2000 and 2001 saw unprecedented closure rates—125 and 166, respectively—but that recession period was an anomaly, if anything. The years between the indicated 1991 to 1992 and 2008 recession years experienced much higher closure rates, and are comparatively high even to 2000 and 2001 standards.

In other words, Ulrich's numbers don't necessarily jibe with the idea that closures are tied to a recession—there are lots of closings every year. As I mentioned earlier, 2006, not a recession year, had 104 magazine closings—twice as many as last year.

Plus, it would make a lot more sense to dig deeper and examine the kinds of magazines that close. Say, big mass-market mags versus smaller niche enthusiast titles.

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UPDATE: Magazine-Related Debts Help Push Lenny Dykstra to Bankruptcy

Jason Fell — Thu, 09 Jul 2009 12:32:05 -0400

Managing one’s finances can be tough as nails in this crazy economy.

No one knows this better, now, than former baseball slugger-turned-car wash millionaire-turned-magazine publisher Lenny Dykstra [pictured]. The former New York Mets and Philadelphia Phillies outfielder—nicknamed “Nails”—filed for Chapter 11 protection in California this week.

In his petition, Dykstra claimed $50,000 in assets and between $10 million and $50 million in liabilities.

Some of Dykstra’s financial woes stem from the failed launch of the Player’s Club, a monthly magazine for professional athletes he published as part of a partnership with Doubledown Media—a publisher of magazines aimed at the Wall Street elite—which went out of business earlier this year. Before the title launched, Dykstra sued Doubledown claiming breach of contract. Doubledown filed a counterclaim alleging Dykstra owed the publisher more than a half million dollars.

Creel Printing also was listed as a creditor in Dykstra’s bankruptcy filing.

On top of his magazine-related troubles, foreclosure papers were issued in March on Dykstra’s $18.5 million mansion and his private jet was reportedly impounded after he failed to pay thousands of dollars in renovations.

I only hope Dykstra isn’t forced to auction off his 1986 World Series ring with the Mets.

UDATE: Dykstra told CNBC Thursday that despite the Chapter 11 filing, he’s getting ready to relaunch the Player’s Club. Dykstra also said the filing is about “reorganization, not bankruptcy. I’m not bankrupt.”
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Ex-Interview Editorial Director Suggested Putting Magazine on the Block

Jason Fell — Fri, 12 Jun 2009 16:42:26 -0400

From layoffs to extravagant photo shoots to freelancers going unpaid, the rumor mill on the financial pitfalls at Brant Publications has been on overdrive for many months. The most significant move recently was the ouster this week of editorial director Glenn O’Brien, who was promptly replaced by former co-editorial director Fabien Baron, who—get this—left the company in February.

A Brant spokesperson did not return a FOLIO: phone call this week seeking comment on the changes happening at the company.

However, details emerged by way of Fashion Week Daily’s exclusive—if not a bit scorned—interview with O’Brien, during which he said the situation at Brant is “like a Greek tragedy. Like watching a company go insane, instead of a person.”

O’Brien pointed to the departure of group publisher Alan Katz and the elevation of owner Peter Brant’s son, Ryan Brant, to president as a major financial stressor on the company. Things got so bad, O’Brien said, he offered to help put Interview on the block. “I told Ryan Brant that if Peter’s situation is that bad, how about selling [the magazine]? I was prepared to go out and look for a team of buyers … I would have liked to get together a group to buy from Peter, but I never got an answer.”

While almost every magazine publisher is feeling the financial pinch in this recession, one thing is for sure: Things at Brant/Interview haven’t seemed the same since longtime editor-in-chief Ingrid Sischy, and former co-owner Sandra Brant, left the company in January 2008.

Besides Interview, Brant publishes the Magazine Antiques, Art in America and newly-launched Modern.

UPDATE: It appears Brant has fired back at O'Brien with a lawsuit alleging he breached his contract by speaking to the media.
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Magazine Starts Grassroots Campaign to Free Itself from Advertising

Fri, 05 Jun 2009 14:04:13 -0400

Need, a small, Minneapolis, Minnesota-based “humanitarian” magazine, is struggling with the advertising downturn—just like the "inhumane" ones.
But after hearing about the initial success of the “Save Paste” campaign ('Save Paste' Campaign Raises $166,000) founder Kelly Kinnunen says the magazine decided to launch a campaign of its own—"ScrewTheMan, SaveTheWorld.”
“The concept was to not only save ourselves, but at the same time promote our end mission of inspiring humanitarian action,” Kinnunen says. “We know it's a bit risky and cheeky but as independent publishers in the current climate you need to be creative.”

Need wants 25,000 new subscribers—which would more than double its current circulation of 19,000.

If successful, the quarterly magazine says it “will eliminate all commercial advertising for one year (thus screwing the man) and replace the allocated advertising pages with stories of how readers are involved in saving the world.”
Whether or not it works remains to be seen. But at least they got a cool staff video out of it:

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What a Time Inc. Spin-Off Might Look Like, Part II

Thu, 04 Jun 2009 11:46:18 -0400

Last week, after Time Warner announced that it would spin off AOL—ending a disastrous, dot.com-era marriage with the former dial-up powerhouse—analysts and media industry onlookers turned their attention, almost immediately, to Time Inc., TW’s troubled publishing arm. Would Time Warner, as some have speculated for years, want to shed Time Inc., too?
Rich Greenfield, an analyst at Pali Research, thinks so: “Unlike many of its media peers, we believe [CEO] Jeff Bewkes and the Time Warner board of directors have no emotional attachment to the assets within Time Warner. In turn, we would not be surprised to see Time Warner seek a separation or sale of its publishing division (magazines) following the AOL spin. With publishing set to represent under 10 [percent] of Time Warner’s EBITDA post-AOL … and the inherent difficulties of shifting Time Inc.’s magazine business to an online subscription model, we believe it may make sense to further simplify Time Warner down to only cable networks and filmed entertainment in 2010.”
But Reed Phillips, managing partner at media banking firm Desilva + Phillips, in an e-mail to FOLIO:, doesn’t think the AOL spin will usher in a quick flip of Time Inc.:
I don't think the spin-off means that much to Time Inc. I believe their Internet operations are pretty independent of AOL and for areas of overlap they can work out agreements to deal with those issues. If TW decides to spinoff Time Inc., I don't think that would happen for another year. If they do so, the deal might look similar to what they are doing with AOL—particularly if the M&A market has not recovered by then.
Of course, we’ve heard this kind of rampant speculation about a Time Inc. spin-off many times before. In 2007, for instance, FOLIO: published this story—“What a Time Inc. Spin-Off Might Look Like”—about just that:
"Bewkes is not a magazine guy, which I think is very important," says one magazine industry observer. "He's a TV guy. And I think that when you get right down to it, the core properties that Bewkes knows about and cares about are the video and movies, not print. Because even if they invest heavily in developing new digital versions of their magazines, it's going to cost money. Meanwhile the revenue is going to continue to be flat to declining."
But according to Reuters, Bewkes “has simply said that by shedding the company’s cable and internet businesses—it is spinning off both Time Warner Cable and AOL—Time Warner will be able to concentrate on 'creating and distributing content,’ which would presumably include its magazines too.”
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More Magazines Returning from the Dead

Jason Fell — Tue, 26 May 2009 12:08:01 -0400

The economic recession has put the traditional publishing model to the test, to put it mildly. With advertising dollars plummeting, publishers have been scrambling to find new revenue streams. Many magazines are on financial life support right now. Others, as we are all too aware, have folded.

But more and more of these grim stories have produced silver linings. Magazine publishers that either folded or were on the brink of bankruptcy have managed to secure outside financing to stay in business.

East West founder Anita Malik said she plans to relaunch the bi-monthly magazine targeting Asian Americans in September after more than a year-long hiatus. Although Malik is still looking for additional investors, she told FOLIO: she needs only $150,000 to $200,000 to get the print edition up and running.

This month, 35-year-old music title Relix returned from the dead. It was acquired by a group of investors—including a core group of the magazine’s employees—three months after being put on temporary hiatus by publisher Zenbu Media.

As of last week, Decatur, Georgia-based Paste raised $166,000 from readers as part of a campaign to save itself from bankruptcy.

I think these are just the tip of the iceberg. Garden & Gun, JPG and Natural Solutions magazine publisher InnoVisions Health Media all were on the brink of extinction, but managed recently to find financial lifelines.

For publishers and PE firms with capital to spare, now is proving to be a good time to make strategic acquisitions and/or investments in magazine products that—with some creative thinking on the business side—show potential to be profitable.
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R.R. Donnelley's $1.3 Billion Letter to Quebecor

Wed, 13 May 2009 10:42:30 -0400

Yesterday, R.R. Donnelly, the Chicago-based printer, sent a letter to Quebecor World indicating its interest in acquiring the mega-printer for approximately $1.3 billion. It's unclear whether or not Donnelley's overture is hostile, nor is it clear whether or not a deal of this size would raise the ire of antitrust regulators (I'm thinking it might).
Here's the letter in full:
May 12, 2009

Jacques Mallette
President and Chief Executive Officer
Quebecor World Inc.
999 de Maisonneuve West
Suite 1100
Montréal, Province of Québec
H3A 3L4

David McCarthy
President
Quebecor World (USA) Inc.
150 East 42nd Street
New York, NY 10034

Steven Strom
Managing Director
Jefferies & Company, Inc.
520 Madison Avenue, 10th Floor
New York, NY 10022

Re: Purchase of All or Substantially All of the Assets of the U.S. and Canadian Debtors

Ladies and Gentlemen:

As you know, on August 11, 2008 we expressed to you in writing our interest in acquiring a significant portion of the assets and businesses of Quebecor World. We subsequently further indicated our interest in pursuing a transaction in conversations with various people, including Mr. Randy Benson, Chief Restructuring Officer of Quebecor World Inc. (“QWI”), Mr. Andy Kramer of UBS, and Mr. Eric Korsten of Jefferies & Company, Inc. Although we have not received any response to our previous proposal, we have continued to follow the publicly-available information concerning your reorganization proceedings.

We recently reviewed the draft First Amended Plan of Reorganization proposed with respect to the U.S. bankruptcy proceeding and the draft Plan of Reorganization and Compromise proposed with respect to the Canadian reorganization of QWI. We refer to these documents as the "Plans", and to QWI, Quebecor World (USA) Inc. and their debtor affiliates as the "Quebecor Debtors".

After reviewing the draft Plans in light of our own valuation of the relevant companies as stand-alone businesses, we believe that the proposed transaction set out in this letter is superior for the Quebecor Debtors and their creditors to the restructuring proposed by the Plans in their current form. Accordingly, R.R. Donnelley & Sons Company (“RRD”) is pleased to submit to you a preliminary indication of interest to purchase all or substantially all of the assets and properties of the Quebecor Debtors (including shares of their Latin American subsidiaries), free and clear of all claims and interests, on the terms and conditions described below (the “Acquisition”). RRD is ready to proceed as quickly as possible to reducing its proposal to a legally-binding asset purchase agreement for implementation in a court-approved sale pursuant to Section 363(b) under the U.S. Bankruptcy Code and accompanying proceedings under the Companies’ Creditors Arrangement Act ("CCAA"). We would be willing to consummate the Acquisition prior to or in connection with plan confirmation, as you consider in the best interests of the Quebecor Debtors and their creditors.

We understand and appreciate the time and effort that have gone into preparing the Plans, but we only learned of the Plans’ terms upon publication and, in light of those terms, we would like to submit another approach for your consideration as you weigh the options available to you to propose the best possible plan of reorganization for the Quebecor Debtors and their creditors.

Proposal

The key provisions of our proposal are as follows:
(a) Purchase Consideration. We propose to pay the Quebecor Debtors (in the aggregate):
cash in an amount equal to the cash amount contemplated for distribution under the draft Plans, which we believe is approximately US$700,000,000; plus
cash on balance sheet (estimated as of June 30, 2009, at $257,000,000 pursuant to the Plans); plus
30 million shares of RRD common stock, which represent approximately 15% of RRD’s outstanding shares and have a value of US$394,200,000 based on the closing trading price on May 11, 2009. RRD common stock is listed for trading on the New York Stock Exchange, and the current market capitalization of RRD is approximately US$2.7 billion.

We believe that the publicly-listed common stock of the pro forma combined company will offer attractive investment characteristics for current creditors of the Quebecor Debtors when compared to the newly-issued securities of a stand-alone reorganized company. In addition to providing an attractive valuation today and immediate liquidity, for those investors that choose to remain stockholders of RRD, our proposal offers the opportunity to enjoy the synergies involved in the Acquisition and participate in any future appreciation of RRD stock as we grow our business around the world. This is an exciting opportunity and we expect that the Acquisition will be accretive to RRD stockholders after the first 12 months of combined operations.

(b) Valuation Assumptions. Our proposed acquisition price is based on publicly-available information and our deep knowledge of the industry. We have assumed (i) interim operations in the ordinary course, (ii) normalized working capital at closing, (iii) the assets and properties of the Quebecor Debtors (and their Latin American subsidiaries) are consistent with our business expectations based on our industry knowledge and our review of public financial information, (iv) the non-debtor subsidiaries are free of liabilities outside of the ordinary course of business, and (v) the assets and properties of the Quebecor Debtors will be transferred to us free and clear of all claims and liabilities (other than ordinary course trade payables, specific contracts that we ask you to assume and assign to us, and other liabilities to be agreed).

(c) Financing. There would be no financing condition to the Acquisition. We have sufficient funds to pay the cash portion of the consideration from cash on hand and/or availability under our existing revolving credit facility.

(d) Internal Approvals. This proposal has been reviewed at the highest levels of RRD and we are pleased to advise you that the only further internal approval necessary for the execution and delivery of a binding asset purchase agreement is the approval of our Board of Directors. No shareholder approval is required.

(e) Due Diligence. We are prepared to work with you and our respective advisors to proceed as expeditiously as possible to complete our business, financial, accounting, tax, environmental and legal due diligence review, including meetings with QWI’s management, and the reasonable opportunity to inspect QWI’s facilities. With access to the right data and personnel, we are confident that this work could be completed without material delay.

(f) Regulatory Matters. The Acquisition will require expiration of the applicable waiting period under the U.S. Hart-Scott-Rodino Act and under the Competition Act Canada, if applicable, approval under the Investment Canada Act and, potentially, filings in other jurisdictions. We and our advisors have done considerable work assessing the regulatory issues associated with the proposed Acquisition and are confident that the proposed Acquisition can be completed in a timely manner.

(g) Competitively Sensitive Information. We are sensitive to any concerns that you may have with respect to the treatment of competitively sensitive information during the due diligence process. One of the first conversations that we would like to suggest take place would be between your antitrust counsel and our antitrust counsel at Sullivan & Cromwell LLP and Osler, Hoskin & Harcourt LLP. Our advisors are very familiar with the issues relating to conducting diligence for potential strategic transactions in this industry and can describe to you the set of safeguards that we would implement to avoid any risk that information is shared inappropriately.

(h) Structure and Documentation. The purchaser would be one or more wholly-owned subsidiaries of RRD. There would be no other investors or sources of capital or financing for the Acquisition. We would expect the transaction to be documented in a customary asset purchase agreement, with an agreed form of bidding procedures, contract procedures and sale order for the U.S. proceeding, and appropriate equivalent Canadian documents and proceedings relating to the CCAA. The asset purchase agreement would be effective upon court approval and would include customary representations, warranties, covenants and closing conditions and other terms customary for similar transactions. Following due diligence, we are interested in exploring alternative structures in order to achieve the most tax efficient transaction for the parties.

(i) Stalking Horse Protections. We do not require any exclusivity period, no-shop provisions or expense reimbursement to conduct due diligence or finalize the terms of the proposed Acquisition. However, once we execute a definitive asset purchase agreement, we will require customary protections for a stalking horse bidder in light of the value created for the Quebecor Debtors by our offer, including overbid protections and other bidding procedures to be agreed, milestones to closing and a termination right if the milestones are not met, expense reimbursement, and, in the event the Quebecor Debtors consummate an alternative transaction, a break-up fee in an amount to be agreed.

Process

We would like to suggest that you immediately identify a working group at the Quebecor Debtors that can work with us and our advisors, Sullivan & Cromwell LLP, and Osler, Hoskin & Harcourt LLP, to conduct the due diligence process and finalize the terms of the definitive asset purchase agreement. As mentioned above, prior to signing a definitive asset purchase agreement, we require no expense reimbursement and no deal protection of any sort. We understand that the Quebecor Debtors would be free to abandon discussions with us at any time (and vice versa), and we believe that we can progress very quickly to agree upon a transaction without materially impairing your ability to solicit approval of the current draft Plans later if for any reason you decide not to proceed with a transaction with RRD. We stand ready to execute a customary confidentiality agreement upon request.

About RR Donnelley
RRD is a full-service provider of print and related services, including business process outsourcing. RRD provides the industry’s broadest product and service line, including solutions in commercial printing, direct mail, financial printing, print fulfillment, labels, forms, logistics, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management to customers in the publishing, healthcare, advertising, retail, technology, financial services and many other industries. RRD’s broad product and service mix enable the company to provide end-to-end services to customers in virtually every business, education, government, and non-profit sector.

RRD has operations on four continents to provide exceptional service to leading global organizations. Its agile fleet of digital printing devices includes more than 1,000 proprietary and commercially-available units across more than 60 facilities worldwide.

Through its leading proprietary eCommerce systems it provides customers a comprehensive array of print management, premedia, and other services. RRD’s development pipeline continues to deliver innovations, such as the world’s first 1200 dpi 4-color inkjet press and the company’s recent announcement of a breakthrough that will bring lithographic economics, flexibility, and performance to variable printing.

Its logistics capabilities include services that help it effectively deliver customers’ mail deep into the postal stream, handle complex rollouts of retail signage and point of sale materials, fulfill direct mailings that incorporate personalized URLs, and provide customers online access to tracking information.

Since 2004, RR Donnelley has completed acquisitions and asset purchases in Latin America, North America, Europe and Asia.

We believe that we are uniquely qualified to assess and complete the Acquisition given our experience in financing and executing major transactions in the printing industry. We have a proven track record of successful execution of complex, structured transactions, providing you with a high degree of certainty that we can consummate the Acquisition in a timely and efficient manner.

* * * *

This letter is not a legally-binding offer or agreement. Any legally-binding offer or agreement will be set forth only in definitive documentation approved by you and us.

If you have questions about our letter or would like to discuss the next steps, please do not hesitate to contact me. You also may contact Stefan Selig of Banc of America Securities/Merrill Lynch & Co. (REDACTED), or Andy Dietderich at Sullivan & Cromwell LLP (REDACTED).

In connection with our own disclosure obligations we will be publicly disclosing this letter by filing it with the US Securities and Exchange Commission. We also understand and appreciate that you will want to share this letter with the many stakeholders in your restructuring process.

We are very excited about the possibility of this transaction and look forward to taking the next steps with you.

Very truly yours,

R.R. DONNELLEY & SONS COMPANY

By /s/ Thomas J. Quinlan III
Name: Thomas J. Quinlan III
Title: President and Chief Executive Officer

cc: Louis J. Gouin
(Ogilvy Renault LLP)

Michael J. Canning, Esq.
Neil M. Goodman, Esq.
Joel M. Gross, Esq.
(Arnold & Porter LLP)

Murray A. McDonald
(Ernst & Young Inc)

S. Richard Orzy
Kevin J. Zych
(Bennett Jones LLP)

Ira S. Dizengoff
David H. Botter
Ryan Jacobs
David Staber
Sarah Schultz
(Akin Gump Strauss Hauer & Feld LLP)

Audra D. Cohen
Andrew G. Dietderich
(Sullivan & Cromwell LLP)

Edward Sellers
Randall Pratt
(Osler, Hoskin & Harcourt LLP)

Stefan Selig
(Banc of America Securities/Merrill Lynch & Co.)
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Blame Game: Bankers vs. Publishers Over Covenants

Matt Kinsman — Fri, 08 May 2009 15:59:18 -0400

Covenant lite deals and the 30 percent cushions attached to many publishing loans a few years ago seem almost laughable today. Publishers are now being held to much stricter covenant terms and for many, that's an even bigger immediate danger than losses in revenue and EBITDA.

Last month, a memo from BNP Media executives informing staffers of a 25 percent pay cut said banks are "forcing near unattainable terms on companies such as ours, considering the fact that there has been such a severe downturn in the economy."

The margin for error is razor thin for many publishers. Bankers are increasingly taking control of publishers, including GE Capital negotiating with ABRY Partners for the takeover of Cygnus and BIA Digital taking over Douglas Publications, which it first invested in as part of Douglas' estimated $15 million acquisition of the Briefings Publishing Group.

But is it the fault of bankers or publishing executives overleveraging their companies and taking on too much debt?

"This is an easy time for CEO's to blame bankers and for bankers to blame CEO's," says Reed Phillips, managing partner at DeSilva & Phillips. "The truth is that there was a great supply of capital available and many publishers took advantage and leveraged their companies to very high levels. Because of the great supply, companies could play one bank off another and get better terms and more leverage. The end result was that this spiraled out of control because everyone - the banks and the companies - erroneously believed that the good times would continue. Instead, the music stopped and now a lot of people are paying the piper."
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A Ponzi Lawsuit That Sounds Like a Scam

Wed, 06 May 2009 12:53:01 -0400

Last May, Entrepreneur put Agape World, a Hauppauge, New York-based company, on its “Hot 100” list of fast-growth businesses.

In January, federal agents executed warrants on Agape’s offices, and Nicholas Cosmo [above], founder and owner of Agape World, was arrested and charged with a $370 million mail fraud. According to Time.com, it appeared Cosmo was running an alleged Ponzi scheme, similar to that of Bernie Madoff.

Earlier this month, a group of 87 investors (which may or may not include the actor Vincent D’Onofrio) filed a $178 million lawsuit against Entrepreneur, alleging the magazine misled them by putting Agape on its “Hot 100” without checking them out thoroughly.

Entrepreneur is no stranger to legal battles, many involving the use of the word “entrepreneur,” for which it holds a trademark and doesn’t mind flexing its legal muscle against other companies that use the word in their names. (Which, to me, would be like Time suing Rolex.)

This lawsuit, however, sounds like a scam.

That Entrepreneur should be responsible for investments made in a company that’s found to be fraudulent is laughable. Should investors sue Fortune because GM was ranked number five on the Fortune 500? Should I sue Sports Illustrated for picking the Mets to win the World Series when they crumble in September, and I lose my shirt in Vegas?

Of course not.

According to the suit, Entrepreneur “did not attempt to verify the information it received from Agape, at no time did Entrepreneur visit Agape headquarters.”

How about those 87 investors try doing their own homework? And use something other than Entrepreneur?

Click here to read FOLIO:’s report on the suit. Click here for a PDF of the lawsuit. And click here for background on the federal case against Agape.

[IMAGE: Time.com]
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UPDATE: Felix Dennis Says The Week is for Sale

Wed, 06 May 2009 11:27:32 -0400

At the World Magazine Congress in London this week, Felix Dennis, the founding publisher of Maxim who sold the lad title along with Blender and Stuff—but not The Week—to Alpha Media for a reported $240 million two years ago, said in an interview that now “everything I own is for sale,” including his beloved news magazine.

But Felix Dennis says a lot of things.

Last year, he allegedly told a reporter that he once pushed a man off a cliff, which promptly created a new title to look for on the masthead. Felix Dennis: Publisher-murderer. (He eventually retracted it, saying he was drunk at the time he said it.)

But, like Maxim in its heyday, Felix Dennis thrives on being brash, outspoken, gleefully unglued. This is, after all, a multimillionaire who went on a spoken-word poetry tour and overcame an addiction to crack cocaine.

I interviewed Dennis for an hourlong podcast last year. (The podcast never aired—partly because the digital recorder I was using made Dennis sound like Felix the Cat, and partly because he spent most of it touting his book, How to Get Rich—an unlikely entrant into the frothy, cluttered self-help/motivational category... It is, however, now archived here.)

I found him to be brash, outspoken and gleefully unglued—in other words, a great interview.

Here’s what Dennis said in London yesterday:

"Conservatively, after doing my homework I estimate that worldwide Maxim has to date generated over $3 billion in profits for its publishers, distributors, licensees, licensors and its owners, and the actual figure may be much higher. Now, that's a chunk of change for a rag born in a smoke-filled London pub … Feel free to report back to your colleagues that Felix Dennis has lost the plot. And that as a poet he lives in a lyrical dream of the distant past and that his little company now poses little possible threat to rivals in this room, that he will not be poaching any of your best staff, who will not be scouring the world to spend his ill-gotten gains setting up titles or launching new Web sites against you.”

He added: “The murderous recession of 2008/2009 and perhaps 2010, will come to be viewed for what it really was: one of the greatest financial opportunities in the history of our industry.”

After his speech, he told Samir Husni that “everything I’ve got is always for sale, except my lover and my mother and my dog. Of course I would sell the Week. The trouble is they always offer you the same $100 million for it. If somebody comes along and offers me $200 million then I’m going to be thinking very hard.”

But just because Dennis says it, doesn’t make it so.
UPDATE: In an e-mail to FOLIO:, Dennis wrote: "The trouble with second hand reporting, my friend, is that you get your facts arsey-versey! That was £200 million (pounds sterling) not U.S. Dollars." Which would make his "think hard about it" price tag roughly $300 million.
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Magazine Bailouts, Canada-Style

Jason Fell — Fri, 10 Apr 2009 11:44:59 -0400

The U.S. government has injected billions of dollars into our banking and auto industries. So, what about magazines? Where’s our lifeline?

While American magazines can hold their breath waiting for a government bailout, our counterparts to the north don’t have to wait as long. Canada’s government, through its Canada Magazine Fund, has so far provided nearly $40,000 (Canadian) in funds to magazines across the country. In February, it announced the planned creation of the Canada Periodical Fund, a streamlined program to benefit magazines as well as community newspapers, eventually replacing the Magazine Fund and its Publications Assistance Program.

The Canadian government said it has budgeted $30 million over the next two years to help out the country’s periodicals.

The latest beneficiary: The Canadian Fly Fisher Magazine. "This financial support is an important contribution to the preservation of Canada's heritage; it allows us, for example, to promote one of the great outdoors activities for which Canada is famous," the magazine's editor and publisher, Christopher Marshall, said in a statement. "It is also an investment in our economy, as magazines create jobs and provide work to various suppliers."

Sure, it seems a bit socialist, but how is it any different than what the U.S. has done for the auto and financial industries?

Canada’s magazine funds are no magic solution, though. I assume that as the global economies suffer, the monies budgeted for these grants have been diminished. Canada has seen its own share of magazines go out of business in the last few months—Canada’s edition of Time, for instance. Even Masthead, the country’s version of FOLIO:, ceased publishing its print edition late last year.
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