Feb. 14 (Bloomberg) -- Time Warner Inc. is considering a deal that would send most of its magazines to Meredith Corp., according to a person familiar with the talks, putting titles such as People and Entertainment Weekly in the hands of the Iowa-based publisher of Better Homes and Gardens.
Under the terms being discussed, Meredith would get all but a handful of Time Warner’s 21 U.S. magazine titles, according to the person, who asked not to be named because the discussions are private. Time, Sports Illustrated and Fortune would remain with Time Warner, the person said. Meredith is more interested in titles such as Real Simple and InStyle that fit with its own magazines aimed at women, according to the person.
The move would let Time Warner offload at least part of its worst-performing major division, helping insulate the company from an industrywide slump in advertising sales. The Time Inc. unit, currently the largest U.S. magazine publisher, has struggled to shift from print to the Internet, where ads commands lower rates than with traditional magazine campaigns.
Finding a new home for the publishing business “would unlock value and improve the growth profile for Time Warner,” John Janedis, an analyst at UBS AG in New York, said in a report yesterday. He estimates that Time Inc. would be worth $2.4 billion to $2.9 billion, excluding the publications that Time Warner would keep within the company.
Meredith has a market value of $1.67 billion and about $25 million in cash, suggesting that it wouldn’t buy the magazines outright. Time Warner and Meredith are instead discussing a joint venture that would create a new magazine company focused mainly on women’s publications, the New York Times reported. This new company would borrow as much as $1.75 billion to pay a dividend to Time Warner, according to the Times.
A deal would follow years of slumping sales at Time Inc., which has seen revenue decline by almost 40 percent over the past decade. The business, led by Chief Executive Officer Laura Lang, said last month that it would eliminate 500 positions, or 6 percent of its workforce, as newsstand sales and advertising continued to decline. The company’s publishing revenue fell 6.6 percent last year to $3.44 billion.
Meredith’s revenue fell about 2 percent to $1.38 billion in its most recent fiscal year, while net income declined to $104.4 million. In addition to Better Homes, its titles include Ladies’ Home Journal, Family Circle and Parents.
BDT Capital Partners, a Chicago-based investment firm, is advising Meredith on the deal, another person familiar with the negotiations said. Keith Cocozza, a spokesman for New York-based Time Warner, declined to comment, as did Art Slusark, a spokesman for Meredith.
The two companies have had previous connections. Jack Griffin, who served as Time Inc.’s CEO until his ouster in 2011, was a former executive at Meredith. The Des Moines-based company was founded in 1902 by Edwin Thomas Meredith, who began publishing Successful Farmer magazine that year. It now employs more than 3,300 people.
Time Inc. traces its origins to 1922, when Henry Luce and Briton Hadden left the Baltimore News to start Time magazine in New York.
Time Warner rose 0.5 percent to $53.10 at 10 a.m. in New York. The stock had climbed 10 percent this year through yesterday, beating the 6.6 percent advance of the Standard & Poor’s 500 Index. Meredith gained less than 1 percent to $38.
The company’s television business, which includes HBO and other cable networks, has been generating most of its growth. Affiliate fees -- the money paid by cable companies to carry the company’s programming -- helped earnings top analysts’ estimates last quarter. The publishing business, meanwhile, declined 7 percent in the period.
In splitting off some of its print operations, Time Warner would be following in the footsteps of News Corp., the media company controlled by billionaire Rupert Murdoch. News Corp.’s publishing business, which lost $2.1 billion in fiscal 2012, will be spun off as a separate company later this year.
Murdoch agreed to the move after coming under pressure from shareholders, who didn’t want the print business to be a drag on News Corp.’s television and film divisions, which will be renamed Fox Group.
Fortune previously reported on Time Inc.’s sale talks yesterday.
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