(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Jeffrey Goldfarb
NEW YORK, March 7 (Reuters Breakingviews) - The brief history of Time is a truly epic M&A tale. The gold standard of U.S. magazine publishing proved the ultimate foundation for a giant media conglomerate. Time Warner's (TWX.N) decision on Wednesday to spin off the legacy of Henry Luce's 1920s vision represents the last step in dismantling the empire.
From a single news weekly started 90 years ago for some $86,000, or about $1.2 million in today's money, the company eventually grew to be valued at almost $250 billion in 2001. One of Luce's first deals, buying Architectural Forum about a decade after founding Time, was only a small sign of things to come. An eventual standout in Time Inc's stable, Life magazine, was the result of an acquisition, too.
Long after Luce retired in 1964, the collection of publications he started, which came to include Fortune and Sports Illustrated, proved a powerful acquisition currency. It was put to use on a grand scale in 1990 when Time Inc bought Warner Communications. What started as a stock swap turned into a cash deal "because of that son of a bitch at Paramount," as Luce's son described Martin Davis, the studio boss who interrupted with a hostile bid for Time Inc. A stretch of market-lagging returns ensued for Time Warner.
The purchase of Turner Broadcasting System in 1996 expanded the sprawl. That $7.5 billion deal more prudently relied on Time Warner's stock for funding, but it also provoked still more resentment throughout the company. These deals set the stage for one of the biggest merger transactions in corporate history: the $180 billion sale of Time Warner to AOL AOL.N.
Strategically flawed and timed just right for the dot-com collapse, it remains one of the most value-destructive deals ever conceived. Time Inc's magazines nevertheless proved a steady source of considerable profit. In the decade to March 2003, encompassing both boom and bust, Time Warner's total shareholder return hit 5,812 percent, according to Thomson Reuters.
The conglomerate that existed then has since been taken apart. The book and music divisions were sold, along with sports teams. AOL and the cable TV operations have been spun off. All told, including the estimated $2.5 billion value of a separated Time Inc, the assets will have generated some $20 billion of proceeds. Despite a 130 percent total return over the past 10 years, Time Warner is worth only a little more today – some $53 billion – than it was a decade ago. It may not be what it once became, but is still quite a story to be spun from a single magazine.
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- Time Warner said on March 6 it would spin off its magazine unit, publisher of Time, Fortune, People and many others, into an independent, publicly traded company by the end of the year, after it had explored combining a big portion of the division with titles published by rival Meredith (MDP.N). Laura Lang, chief executive of Time Inc, will leave after the separation.
- Time Warner statement: link.reuters.com/byj56t
- Meredith statement: link.reuters.com/gyj56t
- Reuters: Time Warner to spin out its magazine unit [ID:nL1N0BYKCC]
Bringing unsexy back [ID:nL1N0B69EV]
- For previous columns by the author, Reuters customers can click on [GOLDFARB/]
(Editing by Richard Beales and Martin Langfield)
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