Hugh Hefner, Playboy Sued Over Bid to Take Publishing Company Private

Playboy Enterprises Inc. and founder Hugh Hefner were sued by shareholders over a proposal to take the media company private.

Directors of Playboy, based in Chicago, have a duty to get the best price for shareholders, investor Charles Germershausen contends in a complaint filed today in Delaware Chancery Court in Wilmington, Delaware.

“The Going Private Plan is the product of a flawed process designed to sell PEI to Hefner and Rizvi Traverse on terms detrimental” to stockholders of Playboy, Carmella P. Keener, the lawyer representing shareholders, said in the complaint.

Hefner owns 69.5 percent of Playboy’s Class A voting stock and 27.7 percent of the Class B non-voting stock. Hefner seeks to offer $5.50 for each Class A and Class B share, court papers show.

Playboy said yesterday that Hefner, who controls its voting shares, wants to take the company private, and offered to purchase the shares he doesn’t already own in Playboy, which includes the namesake men’s magazine, merchandise, and television and video content.

Hefner, 84, isn’t interested in a merger or a sale to a third party out of concern for the company’s brand and Playboy magazine’s editorial direction, Playboy said in a statement.

‘Best Interest’

“I believe my proposal, which was delivered to the Playboy board on July 8, 2010, is in the best interest of the company and its minority shareholders and I look forward to continuing discussions with the board,” Hefner said in a statement.

Playboy Class B shares fell 19 cents, or 3.4 percent, to $5.36 at 2:55 p.m. in New York Stock Exchange composite trading, after jumping 41 percent yesterday. The Class A shares fell 29 cents to $5.25 after climbing 36 percent yesterday.

“Despite PEI’s share price being down recently, the company is poised to reap tremendous benefits by reason of the recent change in strategic direction,” Keener said in court papers.

In a conference call last month, Playboy Chief Executive Officer Scott Flanders said that Playboy’s new strategy is to change from being an “inefficient operator of small segments of media” to becoming more of a brand management company.

Playboy is seeking partners to increase revenue from licensed goods and expand branded clubs and casinos. The moves are part of a restructuring plan that Flanders has said will result in a profit in 2011.

Martha Lindeman, a Playboy spokeswoman, refused to comment on behalf of the company.

The case is Germershausen v. Hefner, 5632, Court of Chancery, State of Delaware (Wilmington).

To contact the reporter on this story: Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net.

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