After Five Years Of Trying, Meredith(MDP) Finally Has Time(and People)

Even before Time Warner(TWX) spun it off in June 2014, Meredith(MDP) was in talks trying to effect a Reverse Morris Trust transaction. Over the subsequent years, Time repeatedly was the subject of buyout discussion, and Meredith was always in the mix.  Well after five years, Meredith finally got its prize. On January 31, Meredith closed its $2.8 billion acquisition of Time, Inc. Time Inc. shareholders received $18.50 per share in cash.

To finance the transaction, Meredith secured the following:

• $1.8 billion of senior secured term loans (Term Loan B) maturing in 2025 and priced at LIBOR plus 3.00 percent
• $1.4 billion of senior unsecured notes maturing in 2026 and priced at 6.875 percent
• $350 million of a five-year senior secured revolving credit facility that is currently undrawn
• $650 million investment from a private equity firm

These proceeds were used to finance the acquisition, refinance existing debt and pay transaction costs.

Big cuts will be coming to operations as Meredith expects annual cost savings of between $400 million and $500 million.

Enhances financial strength and flexibility – Meredith expects the acquisition will be accretive to free cash flow in the first full year of operations. Meredith anticipates generating annual cost synergies at the high end of its previously stated range of $400 million to $500 million in the first two full years of combined operations. Meredith has an excellent track record of achieving cost synergies with prior acquisitions, and is confident in its ability to optimize the cost structure of the combined business.

Meredith also touts its new digital footprint

Advances Meredith’s digital position by adding significant scale – Meredith is now a Top 10 digital media company with approximately 170 million monthly unique visitors in the U.S., over 10 billion annual video views, and nearly $700 million in annualized digital advertising revenues. Meredith is well-positioned to benefit from fast-growing advertising platforms, including native, video, shopper marketing, programmatic and social. It now operates the No. 1 premium content digital network for American consumers with unmatched reach to Millennials, including 85 percent of U.S. Millennial women

Meredith continues to own significant other cash generating assets

Continues the strong and growing contribution from Meredith’s Local Media Group– Meredith’s portfolio of 17 high-performing television stations in 12 markets is a consistent generator of strong cash flow. Meredith’s stations — which reach 11 percent of U.S. television households — are primarily Big 4 network affiliates located in fast-growing markets.

Meredith will have significant debt to contend with as a result of this transaction. With continued reliance on the declining magazine business, it will be walking a tightrope with significant risk of failure.

Disclosure: The author holds no position in any stock mentioned