Time Inc.'s small size isn't stopping it from pursuing an acquisition of Yahoo! Inc.'s core business.
The $1.5 billion owner of magazines including People, Sports Illustrated, Time and Fortune,
has heard a presentation from Citigroup Inc. bankers on pursuing a deal
to merge with Yahoo, according to people familiar with the matter. The
idea is of real interest to Time Inc. Chief Executive Officer Joe Ripp,
said the people, who asked not to be identified because the information
is private. Citigroup hasn't been retained, the people said.
Time Inc. would be competing with giants such as Verizon Communications Inc.
and AT&T Inc. for Yahoo, putting itself squarely in an underdog
role to merge with the business. Still, Time Inc. may see it as a
worthwhile effort, because it could pursue a structure with Yahoo called
a Reverse Morris Trust, a tax-free transaction in which one company
merges with a spun-off subsidiary, the people said.
Yahoo CEO Marissa Mayer wouldn't stay with the company under a Reverse Morris Trust, one person said. Ripp, who became CEO of Time Inc. in 2013,
served as finance chief and vice chairman of America Online and has
ideas for Yahoo, the person said. A deal with Time Inc. would be a way
for Yahoo not to sell when the company's valuation is near its low
point, the person said. Yahoo shares have dropped 29% in the past 12
months.
A
cash bid that's high enough for the Yahoo board's liking from a larger
company would probably trump a Yahoo-Time Inc. combination, one of the
people said.
Representatives of Time Inc., Yahoo and Citigroup declined to comment.
Core business
Time Inc. is
only interested in the Yahoo core business, the people said. Because of
the advantageous tax benefits to a Reverse Morris Trust, Time Inc.
could compete with larger bidders, the people said. Time Inc. is
probably the right size—slightly smaller than Yahoo's core business—for
such a structure to work, the people said.
Time
Warner Inc. spun off Time Inc. in 2014. June is the two-year
anniversary of that spinoff. There are probably no tax-related hurdles
regarding the timing of a deal because it's unlikely Time Inc. and Yahoo
had significant deal talks before the spin, one of the people said.
New
York-based Time Inc. is interested in gaining Yahoo's digital reach of
more than 1 billion users around the world, said the people. Time Inc.
is trying to transform its print-focused business as more readers get
their news online and print circulation and advertising revenue decline.
The company said this month it's buying Viant Technology Inc.,
the owner of MySpace, to get more data to help sell targeted
advertising. In a recent earnings call, CEO Ripp called the deal
"game-changing for us."
"Marketers
are selecting media partners that have either data-driven capabilities
or premium content," Ripp said. "We will be able to deliver both in a
single platform and will stand apart from those that offer just one or
the other."
Time
Inc. almost merged with Meredith Corp. in 2013. Meredith is again
looking for merger partners after its deal to acquire Media General
Corp. fell apart earlier this year. Ripp knocked down the Meredith idea
as counter to Time Inc.'s strategy in a Bloomberg TV interview Monday.
"If
you look at Meredith, Meredith has both magazine and TV assets," Ripp
said. "We don't really want the TV assets because we would have to buy
more TV assets."
He said Time Inc.'s plan now is to continue to build its media presence.
"The opportunity for Time Inc. is to continue to grow this business. We are the player of scale in this industry."
By: Bloomberg News.
Review:
Emerging Market Formulations & Research Unit, Flagship Records.
For
The #FacebookTeam