Media Fortune Fame & Folly

Meredith sells TV. What’s next?

Meredith Corp, the largest magazines group in the US, is selling its 17 regional TV stations to Gray Television for $2.7bn which will wipe out the debt taken on to fund the acquisition of Time Inc in 2018. The price is about 10 x EBITDA.

The Des Moines-based company claimed that it will now invest in the growth of its magazines and digital services. Meredith had sold Time magazine, along with Fortune, Money, and Sports Illustrated to four separate buyers for some $500m. Although the television group generated 50% of Meredith profits in 2020, the sale had been expected after an especially tough period digesting the larger Time Inc business many of whose brands had underperformed even before the pandemic.

This week’s deal comes six years after Meredith had sought to expand its TV operations by merging with broadcaster Media General. But it was gazumped by Nexstar Media which paid $4.1bn (9 x EBITDA).

It ultimately bought Time Inc instead. Three years ago, Meredith Corp was euphoric at having acquired the world’s best known magazine publisher for $2.8bn – a 40% premium to the share price. It said the combined company would have revenue of almost $5bn, including $2.7bn of advertising, and the deal would yield annual cost savings of up to $500m.

Meredith was forecasting EBITDA of $1bn in 2020. It didn’t work out like that. The financials soon showed that it had not known nearly enough about the state of Time Inc and had under-estimated the cultural differences. It also demonstrated how difficult it is to catch falling knives and to get cost savings when revenue is falling faster. The numbers tell the story of a deal that went wrong from the start.

In the last three years, Meredith’s revenue has struggled to reach $3bn, and the $548m of EBITDA in the year ended 30 June 2020 is little more than half the $1bn that Meredith promised investors. The $500m of targeted synergies seem to have disappeared. The market cap of the company, which now has net debt of $2.6bn, is only $1.4bn – 60% down in the last three years.

Time Inc’s US revenue in 2016 had been $2.7bn, so you might have expected the combination (even after the sell-off of Time, Fortune et al) to be at least $4bn in 2019. Instead, the three years of Meredith+Time 2018-20 resemble nothing so much as a turbocharged version of Meredith before The Deal. That’s become the cost of assembling a digital audience of 190m American consumers including a claimed 96% of women through more than 20 brands including: People, Better Homes & Gardens, Allrecipes, Southern Living, Parents, Shape, Martha Stewart, and Real Simple.

It is the digital-print magazine leader in food, lifestyle, and entertainment with large audiences and high-quality video content. Meredith is America’s largest magazine publisher with 36m subscribers, and the 17 local television stations it is now selling reach 11% of US households and 30m viewers. The magazine profit has long been propelled by the extraordinary success of its product licensing, notably a bestselling range of Better Homes & Gardens branded products in Walmart.

While the TV stations benefitted from 2020 advertising revenues pumped up by the fierce presidential election campaign, its magazines which (have accounted for almost 70% of its profit) were in crisis, even before Covid forced the company to accelerate layoffs, pay cuts and suspend the dividend. Now, it’s a fresh start for the magazine market leader. But we should expect it to make digital acquisitions and investments to reduce the dependance on print.

Even though Meredith is now doubling down on magazines, we would still not be surprised to see it de-merging or even selling People, still the world’s most profitable magazine but not the kind of food-homes-living brand that it loves best. A JV with a broadcaster or streamer?

In a year or two, it will be interesting to compare Meredith with its UK counterpart, the £2.3bn Future Plc, which – while also acquiring magazines, including Time Inc’s UK business – has been rapidy growing e-commerce revenues. It recently paid £594m for the GoCompare price comparison site. Future has more than doubled its share price in the past year. And, now, so has Meredith.

Meredith Corp