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Private Time for Hef, Playboy

1/17/2011 12:01 AM Eastern

Hugh Hefner can finally take Playboy
Enterprises into a private room.

After about six months of waiting, Hefner’s $207 million
bid to take the adult-entertainment empire he created more
than 50 years ago private has been accepted by a special committee
of independent directors.

Hefner had to raise his price by almost 12%, to $6.15 per
share, to get there.

FENDED OFF RIVAL

The 84-year-old publisher of Playboy magazine tried to buy
out other shareholders for $5.50 per share, last July.

Rival adult-content company FriendFinder Networks,
publisher of Penthouse magazine, countered with an offer
at $6.25 per share. But Hefner has made clear he wasn’t interested
in selling his controlling stake.

The offer won’t set too many tongues wagging, but is
probably the best deal Playboy shareholders could expect,
RBC Capital analyst David Bank said. Even if the stock
should be worth more than $6.15 each, “fundamentals in
the adult-TV market are challenging, especially for Playboy,”
Bank wrote in a research note. “We suspect investors
will take ‘the bird in the hand,’ ” he wrote.

Once the quintessential men’s entertainment brand, Playboy
has been hit hard by the availability of racier adult content
for free on the Internet.

In 2009, revenue fell 17.7% to $240.4 million from $292.1 million.
Domestic TV revenue (including Playboy TV, Playboy TV
en Español and Spice
Digital Networks)
has been in steady
decline over the past
few years. It dipped
19.3% in 2009, to
$50.5 million.

CEO Scott Flanders
has tried to transform
Playboy into a licensing
company, farming
out its bunny logo
for consumer products,
location-based
entertainment and
marketing events.
Third-quarter licensing
revenue was up
24% to $10.8 million from $8.7 million in the prior year. Net
losses, on the decline in the first and second quarters, spiked
in Q3 to $27.4 million from $1.1 million in 2009, mainly due to
$25.8 million in impairment and restructuring fees.

A special committee of independent directors evaluated
Hefner’s offer. The price is an 18.3% premium over Playboy’s
closing price on Jan. 7 and a 56.1% premium to the closing
price of the stock on July 9.

FLANDERS STAYS

Hefner created a new entity for the deal — Icon Acquisition
Holdings — which has equity commitments for the transaction
from an affiliate of Rizvi Traverse Management and
a debt commitment from affiliates of Jefferies & Co.

Flanders will remain as CEO and will maintain a significant equity position in Playboy, the company said.

Hefner already owns 69.5% of Playboy’s class-A shares and
27.7% of its class-B shares. He would need an additional 10.7
million shares to be tendered to achieve a majority. At $6.15,
the offer values Playboy at about $207 million.

Playboy stock rose 17% (89 cents each) on Jan. 10, to
$6.09.

 

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