(Corrects name of magazine to Every Day with Rachael Ray from
Everyday Living with Rachael Ray in the fifth paragraph and
title of Jack Griffin to former president of Meredith's National
Media Group from former CEO of Meredith Corp in 18th paragraph)
By Jennifer Saba
March 6 Time Warner Inc will soon be
without the magazine unit that provided the foundation for the
company and the first part of its name.
Time Inc, the division that publishes titles like Time,
Fortune and People, will be spun off into a separate company,
Time Warner said late Wednesday, ending weeks of merger
negotiations with Meredith Corp.
The process to separate Time Inc into an independent public
company will likely take place by the end of the year.
Time Warner CEO Jeff Bewkes wrote in an internal memo
obtained by Reuters that, "although change can be unsettling,"
Time Inc's "great legacy will live on as embarks on this
new journey as a publicly-traded company."
In a separate statement, Meredith said it had been
approached by Time Warner. The two companies had been in talks
to combine Time Inc's lifestyle and entertainment titles
including People and InStyle with Meredith's titles such as
Every Day with Rachael Ray and Better Homes and Gardens into a
new publicly traded company.
"We respect Time Warner's decision and certainly remain open
to continuing a dialogue on how our companies might work
together on future opportunities," Meredith Corp CEO Stephen
Lacy said in a statement.
Morningstar analyst Michael Corty did not rule out a future
deal between the two companies. "Clearly, Time Warner did not
get the right price from Meredith. I don't think this 100
percent eliminates some kind of combination with Meredith in the
future," he said.
Magazines have been hit with unprecedented challenges in
recent years as people turn to smart phones and tablets to read
and advertisers look to other media to place dollars beside
print. Investors have been pushing Bewkes for years to hive off
Time Inc, which is considered a slow growth, mature asset.
In 2012, revenue at Time Inc, which has more than 100
magazine titles worldwide including its British magazine group
IPC, dropped 7 percent to $3.4 billion on declines in
advertising and subscription sales. Operating income fell 25
percent in the same period to $420 million.
By contrast, a decade ago Time Inc's revenue was $5.4
billion while operating income was $881 million.
As the head of Time Warner Bewkes has been actively slimming
down the company to just cable networks and its movie studio. He
spun off AOL and Time Warner Cable, both of which now trade as
independent, stand-alone companies.
"A complete spin-off of Time Inc provides strategic clarity
for Time Warner Inc enabling us to focus entirely on our
television networks and film and TV production businesses, and
improves our growth profile," Bewkes said in a statement.
When Time Warner spun out AOL it dropped the
Internet company from its nameplate. Conversely, the cable
division kept the Time Warner name after its separation, Time
According to a company representative, there are no plans to
change Time Warner's name after Time Inc is spun out.
LANG PLANS TO DEPART AFTER SPIN
Laura Lang, the former head of digital ad agency Digitas
brought in as CEO of Time Inc in 2011, will leave the company
after the separation.
"After considerable thought, I have decided that taking the
company through a transition to the public markets is not where
my passion lies," Lang said in a memo to staff.
"Jeff has been extremely supportive and I am committed to
working together with him on recruiting the right person to lead
Time Inc at the spin."
Lang succeeded Jack Griffin, the former president of
Meredith's National Media Group, who was ousted as Time Inc CEO
six months into the job.
Spinning out publishing assets has been a popular choice
among media conglomerates. News Corp plans to separate
its newspaper and book publishing assets that include The Wall
Street Journal and HarperCollins from its entertainment
divisions like 20th Century Fox and the Fox News Cable network.
The rationale underlying these separations is to divide
high-growth assets such as cable networks from slow-growth or in
some cases declining assets like newspapers and magazines.
Analysts said these moves create two companies each
attractive to different types of investors. Growth investors are
attracted, naturally, to the high-growth businesses, while value
investors are attracted to the cash flow generation of the
slower growth assets.
As word spread of a possible deal between Meredith and Time
Warner in February, a spate of media reports followed
highlighting the potential culture clash if the companies were
to combine titles.
Located in midtown Manhattan, Time Inc is known for its big
offices, lavish expense accounts and glamorous magazines. At its
heyday people working at Time Inc called it "paradise
publishing." For its part, Meredith based in Des Moines, Iowa
turns out steady and earnest titles pitched to women.
Still, Meredith is also known for its discipline and for
successfully branching out beyond print into other areas like
marketing services. It also owns broadcast TV stations.
Benchmark Co analyst Edward Atorino described Meredith in a
recent investor note as "one of the better-run companies in the
Indeed, one of Meredith's hallmarks is the return it
provides to investors with a $100 million share repurchase
program and 60 percent dividend increase since October 2011.
(Additional reporting by Liana Baker; Editing by Peter Lauria
and Bernard Orr)