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I get the feeling we will soon see some seismic moves in M&A, the kind that will make the weather for some time to come. A look at Vodafone’s results reflects a lack of lustre; revenues down and an absence of bright spots. The odds on a shape-shifting deal, using the ammunition of the $135 billion it scored from Verizon, must now be very short.
While some deals look to the future, others ring of the past times, and have values to match. Time Warner is determined to pare down to only its valuable content assets as exemplified by its flagship HBO franchise. It has already spun-off Time Warner Cable, shrugged-off the disaster that is AOL and, now, has shown Time Inc. the door.
Time was – if you see what I mean – when magazines were seen as content with potential to be exploited across multiple platforms, including TV. Indeed, Time Warner must have thought this not that long ago when it paid over $1 billion for the UK’s IPC Media, now said to be the most troubled part of the very troubled Time Inc. empire, as exemplified by the eponymous Time magazine which, despite the demise of its long time rival Newsweek, remains in free fall decline.
Time Warner has tried hard to sell Time Inc. and nearly got a deal with Meredith, America’s equivalent of IPC; a big mixed bag of general and specialist titles. However, Meredith pulled out worried about cultural clashes that would stop it achieving a turnaround. The subtext is Time Inc. still likes a caviare and champagne cost structure in a bread and water market. IPC has always been known as the Ministry of Magazines in UK media circles but even it looks like a lean, mean machine compared to the over-manned and self-important super structures of Time Inc.
Having failed to sell it, Time Warner is spinning off Time Inc. in much the same way as News Corp spun off its publishing. Except News still believes in publishing, Murdoch has stayed on the board and it was sent into the cold with no debt and a mandate to make acquisitions. By contrast Time Warner has gifted Time $1.3 billion as its share of corporate debt. Thanks for that. In theory, with $600 million of free cash flow, that’s manageable, but with the business heading south in all parts, for how much longer? From where is the inspiration, let alone the investment, to take dwindling magazine audiences into new platforms and keep them monetised, going to come from? This is not a rhetorical question.
As the FT points out, while it is a sort of zero sum game – the shareholders in the spin-off are the same as for Time Warner – it is noticeable the executives who decided Time Inc. should shoulder the debt are those staying with Time Warner.