Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

In the midst of a declining print industry, magazine publisher Time Inc. still managed to draw a competitive bidding process. Its latest financial results help show why. 

Stabilizing
Time's revenue decline is slowing as digital advertising becomes a bigger contributor to revenue and profit
Source: Bloomberg

The $1.9 billion company, which owns Time magazine, People and Sports Illustrated, has asked its five interested suitors to submit acquisition offers by next week, Bloomberg reported Tuesday. Among them is peer Meredith Corp. -- with which Time had a futile fling a few years ago -- and an investor group led by Edgar Bronfman Jr., the folks that effectively put Time in play late last year when it was reported that they had made an unsuccessful bid. It was clear then that after years of speculation, the takeover chatter wasn't going to just dissipate like in the past.

Time is in a better negotiating position, making this the best time to sell itself. Digital advertising sales are now climbing much faster than print ad sales are dropping, which means the company's top line overall is stabilizing and its bidders don't have to worry as much about catching a falling knife. Time sees about $3 billion of revenue for 2017, compared with $3.08 billion last year. It's also forecasting at least $273 million of operating profit, the most in four years.

Progress
Time Inc.'s digital ad sales are posting impressive growth as print declines. Still, print ads are the company's biggest driver of revenue, accounting for $1.2 billion last year, versus $512 million from digital
Source: Bloomberg

An increasing proportion of subscribers -- 32 percent in 2016 -- are digital. And a fifth of active subscribers are on credit card automatic renewal, making them stickier customers. Time's digital ad operations, which include Viant, the data-driven marketing company it bought last year, will be a billion-dollar business "in the near future," Jennifer Wong, president of that division, said on last month's earnings call. Most importantly, it's profitable.

Time magazine, like other leading publications, has been buoyed by the U.S. election cycle and Donald Trump's presidency. In January, Time.com had a record 65 million unique visitors, a year-over-year gain of 24 percent. And if the past few weeks are any guide, the strength driven by the turbulent political environment isn't in danger of subsiding any time soon.

While social media apps such as Snapchat and Instagram are also increasingly important platforms for all news outlets, they're a natural fit for much of Time's entertainment content. Mobile video is growing nicely as well, with 600 million views in January, triple the year-earlier figure. Time has also created the People/Entertainment Weekly Network, aka PEN, to watch videos about everything from those publications' print cover stories to red-carpet fashion wrap-ups, as well as live streaming. 

As for the numbers: At noon on Wednesday, Time shares traded for $18.90 apiece. Gabelli & Co. -- the research firm run by Mario Gabelli, whose funds also own media companies including Time -- pegs the publisher's private market value at $18 a share based on this year's Ebitda estimate, with it rising to $21 for next year and $25 in 2019. With the stock up more than 30 percent since November, it's unlikely bids will go too much higher than $20. (The Bronfman group's original bid last year was in the $18 to $20 range.)

In the News
Time's stock has rallied since it spurned a takeover offer in November and began an auction process. Final bids are due next week.
Source: Bloomberg

The traditional print industry isn't going to rebound. But Time's growth on the digital side has gone from hopeful to promising. Time still probably has too many publications (you can see the long list here), which means either the next owner can do more streamlining or that some suitors may be interested in only certain titles rather than the whole company. I still think a full takeover is the most likely scenario, though.

Should Time agree to one, the global merger wave of 2015 and 2016 will have engulfed every piece of the former Time Warner Inc. empire. Time Warner Cable sold to Charter Communications Inc., AOL sold to Verizon Communciations Inc. and network owner Time Warner has agreed to sell itself to AT&T Inc. 

Time to close to the book. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net