The ‘Devastating’ Opportunity Cost of Time Inc.’s Sale Process
The process of selling the storied magazine giant comes with an added, intangible price.
Time Inc. says it’s following its “own strategic plan,” at least for now, but whether that means the company is officially off the block is another question entirely. The company issued a statement on April 28 saying that after months of fruitless negotiations to sell itself, it has decided to pursue its own plan—meaning, presumably, not the plan sought by a potential buyer.
It was a surprising turn of events in a process that has consumed the attention of the company’s senior management for a protracted period. Many published reports drew the conclusion that the company has taken itself off the block, although the statement never said that. It was more circumscribed. And what company — whether it’s on the block or not — isn’t following its own strategic plan?
In fact, it may be as likely that Time Inc. made the statement as a negotiating tactic — a move to either persuade potential buyers to sharpen their pencils, or to strategically appear to be backing away from a sale. Either way, what’s not in question is that the extended sale process has distracted the company from virtually all operating aspects of the business, leaving a cooling-off period as a time when management can refocus on the day-to-day elements of the business. Several observers who spoke to Min in the last few days suggested that the opportunity cost of a long sale process for the company must be crippling.
“Prolonged uncertainty breeds fear,” said one source who asked not to be quoted by name. “Time Inc. has been shopping itself for acquisition since Jeff Bewkes spun them out from Time Warner. That long-term, yet unrealized dream of selling has encouraged the best people to look for new jobs. It leaves a dark cloud of uncertainty. This impacts business performance.”
Is senior management distracted? “Absolutely,” says another industry executive manager, a well-known figure who is familiar with Time Inc., and who asked for anonymity because he was concerned about criticizing a former competitor. “Any kind of acquisition, on either side, is a huge task.”
As a manager, the source says, “you only have 100 percent mindshare. Maybe you can stretch it to 120 percent for a short period of time. But you’re allocating that mindshare, and during the course of the process, a good part of it is allocated to the transaction.”
John French, a consultant and veteran B2B executive manager who as CEO of Cygnus Business Media two years ago successfully oversaw the breakup and divestment of that company, agrees. “One of my biggest fears was, ‘What am I missing?’” he says. “The private equity owners said they needed me to lead the sale process. But I still had to be part of day-to-day operations. I would say, ‘Oh, by the way, what happened today?’”
Time Inc. declined to comment, but sale talks were said to center around the per-share price in a deal. Time Inc. wanted it to be above $20, while published reports suggest that the primary bidder, Meredith, wanted it to be less. In recent days, other bidders, one said to be Verizon, had gotten into the mix. A joint venture of two other companies, Pamplona Capital and Najafi Cos., were reportedly in the running as well. The company’s stock was trading around $15.50 as of May 3rd. With about 99 million shares outstanding, the company’s market cap is about $1.54 billion, significantly less than its revenue, which for the full year of 2016 was just under $3.1 billion.
It’s in this context that the industry’s largest and only publicly traded pure magazine-media company — a proud business approaching its 100th birthday, owner of venerable brands like People and Sports Illustrated — remains engaged in an extended negotiation to terminate its life as an independent company.
“I think the opportunity cost is devastating,” says Bryan Welch, a longtime magazine-media executive manager and former CEO of B the Change Media, as well as Ogden Publications. He’s currently CEO of Foster Care Technologies. “The superficial level is that management bandwidth is consumed in the process of the sale. And circumstances have converged to keep them in that process for a long period of time. It’s devastating to leadership energy.”
More than that, Welch says, is that the equity markets are defining value as based on scale, while Time Inc. and other media companies deliver value on something else entirely: Engagement.
“Engagement is where the people in our business really make their money, and it’s really hard to do that in a short time frame,” Welch says. “As long as management is focused on the market’s valuation mythology, it’s distracted from the actual value-creation model that’s operational in those markets.”
And it’s not just senior management that is hamstrung by the distraction of a sale process. It affects operations throughout the company, from sales to support functions to strategic decisions on startups, portfolio trimming, frequencies, vendor selection, partnerships with outside businesses and a whole lot more. There’s an impact on morale, as people wonder what will happen to their jobs, and whether they’ll even have jobs. There’s an impact on sales, as advertisers become wary. “Even though these brands are not going away, you’re associating your brand with a media brand, and you want to be associated with a brand of stability,” says the source who discussed the challenge with executive-management mindshare.
“They’re drifting,” said another source. “For those of us in the industry who remember their history, they were the absolute leader in tech. They ‘ran to the numbers’ in printing management. In distribution and every manufacturing way, they were at the leading edge, leading the industry. I’m sure they feel like they’re doing the best they can, but under the circumstances, the very best they can be is distracted, trying to pull off a deal.”