Penthouse Owner to Compete With Hefner for Playboy Control
FriendFinder Chief Executive Officer Marc Bell said in an interview the company is “looking at alternatives” and later wrote in an e-mail it will probably make the bid today.
Playboy said yesterday that Hefner 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 plans to offer $5.50 apiece in cash for the Class A and Class B shares, Chicago-based Playboy said in a statement. Hefner, 84, is partnering with Rizvi Traverse Management LLC for the transaction. The offer, at a premium of more than 30 percent, values Playboy at about $185 million.
Playboy said Hefner, who controls its voting shares, isn’t interested in a merger or sale to a third party out of concern for the company’s brand and Playboy magazine’s editorial direction. Playboy has combined units and slashed jobs to cope with a circulation plunge caused by Internet competition.
After Hefner founded the company in 1953, Playboy magazine garnered a following for its photos of nude women, its satirical cartoons, and its fiction. The first issue of the magazine included photos of Marilyn Monroe, and authors such as Vladimir Nabokov were published in Playboy’s pages.
The company expanded around the globe in the 1960s and ‘70s with Hefner at the helm. The company went public in 1971 and circulation peaked at 7.2 million in 1972. In June, the company hosted parties around the country to mark the 50th anniversary of the once-famous Playboy membership nightclubs that dotted the globe.
Playboy’s revenue has declined for the past two years as it has lost more than $200 million. At the beginning of this year, the company reduced Playboy magazine’s rate base, the total of newsstand and subscription sales guaranteed to advertisers, to 1.5 million from 2.6 million. In addition to the magazine, Playboy creates videos for its website and cable-television networks, and licenses products with its bunny-ear brand.
‘Girls Next Door’
The company last year hired Scott Flanders as chief executive officer, replacing the founder’s daughter, Christie Hefner. Christie Hefner had served as CEO for 20 years, as her father continued to personify the brand with his lifestyle at the Playboy mansion.
The Los Angeles mansion, which the company uses for television shows, photo shoots and events, is “an enormous asset to us,” said Playboy spokeswoman Martha Lindeman. “It’s a huge part of our brand.”
Hefner is currently most recognized for squiring voluptuous young women around the mansion while clad in one of his trademark silk smoking jackets. Some of the octogenarian’s most recent girlfriends star with him in the TV show, “The Girls Next Door,” and related online videos.
Hefner was sued in 2009 by an investor who said the Playboy founder scuttled potential acquisitions so he could maintain his residence at the mansion. Lindeman said she didn’t know the status of the lawsuit because it was filed against Hefner personally.
Bell said that if he successfully purchases Playboy, he wouldn’t require Hefner to move out of the Los Angeles mansion. Bell, whose company includes the AdultFriendFinder.com website, said he is interested in Playboy for its online potential.
“Our interest is mostly the digital assets,” Bell said. “We have no desire to throw him out.”
Hugh Hefner couldn’t be reached for comment, according to Lindeman. Christie Hefner declined to comment, according to her spokeswoman, Deb Parry.
In a conference call last month, 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, based in Chicago, 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.
On last month’s call, Flanders said that investors were undervaluing Playboy stock.
“You could own the company for an enterprise value of $200 million, and we believe we have a billion-dollar brand,” Flanders said at the time.
Declining Magazine Sales
Last week, the company announced that it would downsize its organizational structure, resulting in a $3 million charge in the second quarter of this year. In recent days, Michael Dannhauser, Playboy’s senior vice president and controller since 1998, said that he was leaving the company. His duties were given to Christoph Pachler, according to Lindeman.
Hugh Hefner owns 69.5 percent of Playboy’s Class A voting stock and 27.7 percent of the Class B non-voting stock. The company said it hasn’t received a definitive offer from Hefner, and the board has made no decision about the proposal.
Playboy B shares fell 14 cents to $5.41 at 10:29 a.m. in New York Stock Exchange composite trading, after jumping 41 percent yesterday. The B shares had gained 23 percent this year before yesterday. The A shares advanced 3 cents to $5.56, after climbing 36 percent yesterday and closing at $4.06 on July 9.
Playboy magazine’s U.S. sales fell 48 percent to $7.1 million in the first quarter, reflecting the company’s decision to lower the magazine’s rate base and combine some issues. The company’s Print and Digital group lost $1.1 million in the first quarter, compared with a loss of $3.6 million in the 2009 quarter. The group’s revenue fell 30 percent to $18.2 million.