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Penthouse Owner Outbids Hefner With Playboy Offer

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FriendFinder Bids $210 Million for Playboy, Topping Hefner
Playboy owner Hugh Hefner. Photographer: Gabriel Bouys/AFP/Getty Images

July 15 (Bloomberg) -- FriendFinder Networks Inc., the owner of Penthouse magazine, said it will offer $210 million to acquire Playboy Enterprises Inc., challenging a bid from Hugh Hefner to take the company private.

The bid pits FriendFinder Chief Executive Officer Marc Bell against Hefner, Playboy’s 84-year-old founder, who offered $123 million to acquire all shares he doesn’t already own. Hefner’s bid values all Playboy shares at about $185 million, making the FriendFinder bid a 14 percent premium to Hefner’s offer.

“We are excited about the prospect for the combination of Playboy Enterprises and FriendFinder Networks,” Bell said in a letter to Playboy’s board.

Bell, whose closely held Boca Raton, Florida-based company operates adult-themed websites such as AdultFriendFinder.com and Cams.com, proposed partnering with Hefner in running Playboy.

“We envision that following the completion of the proposed transaction, Mr. Hefner would retain editorial control of Playboy Magazine and would be entitled to reside in the Playboy Mansion,” the letter stated.

Playboy Class B shares rose 1 cent to $5.52 at 4:03 p.m. in New York Stock Exchange trading. They have increased 73 percent this year.

Hefner’s Offer

Playboy, the Chicago-based publisher of the namesake adult magazine, produces television and video content, and licenses its trademark bunny logo on merchandise and entertainment venues. Magazine circulation has dropped and revenue has declined in recent years. Playboy lost more than $200 million the past two years, and decreased the magazine’s rate base, the total of newsstand and subscription sales guaranteed to advertisers, to 1.5 million from 2.6 million.

Playboy confirmed it received FriendFinder’s proposal. Playboy’s board “will give it appropriate consideration,” the company said in a statement.

Hefner, with partner Rizvi Traverse Management LLC, plans to offer $5.50 apiece for Playboy’s Class A and Class B shares, Playboy disclosed July 12. The offer represents a premium of more than 30 percent to where both classes of stock traded before the offer was made. A spokeswoman for Rizvi Traverse, Cindy Leggett-Flynn, declined to comment.

Hefner owns 70 percent of the Class A voting stock and 28 percent of the Class B non-voting stock. In a posting on Twitter this week, Hefner addressed the potential for a competing bid from FriendFinder.

“Penthouse really isn’t in the picture,” Hefner said. “I’m buying, not selling.”

Hefner couldn’t be reached for comment after FriendFinder submitted its proposal. His latest posting on Twitter read, “Playing gin rummy with the guys tonight and then cuddling with Crystal.”

Shareholder Lawsuits

Playboy shareholders have taken action in response to Hefner’s buyout proposal. A shareholder lawsuit, filed in Chicago this week, called Hefner’s bid “inadequate.” A complaint filed this week in Delaware Chancery Court in Wilmington, Delaware, called Hefner’s plan a “flawed process,” and said that Playboy’s directors have a duty to get the best price for shareholders.

In his letter to the Playboy board, Bell said that FriendFinder had contacted lenders regarding financing for the acquisition.

“We are confident that ample financial resources will be available to complete this transaction,” Bell wrote.

FriendFinder this year postponed an initial public offering that was planned to raise as much as $240 million, according to a U.S. Securities and Exchange Commission regulatory filing. The company was selling a 49 percent stake and said it would use the proceeds to pay down debt.

The company lost money in 2006, 2007, 2008 and for the first nine months of 2009, according to the SEC filings. It had $409.5 million in long-term debt as of Sept. 30, 2009, the most recent figures available because the offering was delayed.

To contact the reporter on this story: Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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