Why Should Hefner Have All the Fun?
By
ANDREW ROSS SORKIN“If I sold it, my life would be over.”
That’s what
Hugh Hefner, the 84-year-old velvet-robe-wearing founder of
Playboy,
told a reporter for The New York Times last year about the magazine empire he started in 1953.
Playboy has struggled mightily in recent years in the face of competition from the Internet, but while generational tastes may have shifted, Mr. Hefner still hasn’t lost his love for blondes — or his magazine.
That perhaps helps explain why Mr. Hefner announced last week that he had made a bid to acquire all the stock of Playboy Enterprises that he doesn’t already own.
In
a letter to Playboy’s board — of which he is not a member — Mr. Hefner disclosed his bid of $185 million. But he also made something else plain: “I am not interested in any sale or merger of the company, selling my shares to any third party or entering into discussions with any other financial sponsor for a transaction of the nature proposed in this letter.”
In other words, Mr. Hefner is only interested in selling his bunnies to himself.
And in case it wasn’t clear, Mr. Hefner
took to Twitter in the days after he made his bid. “My interest in taking Playboy private is prompting some crazy rumors. Playboy isn’t in play. I’m buying, not selling,” the octogenarian said in a post.
With 69.5 percent of Playboy’s Class A common shares, Mr. Hefner has de facto control of the company, even though he owns only 33.7 percent of the company’s class B shares, where most of the economic value resides. The B shares, however, have no vote.
Like many family-controlled media companies, including
The New York Times Company, Playboy has a dual-class stock structure. Such arrangements are meant to help the controlling family protect the editorial integrity of the product when an unsavory suitor comes along.
But Mr. Hefner’s bid raises an important question: Should Mr. Hefner — or any other dual-class owner — be able to buy his or her company from the public without any competition?
Already, Playboy is attracting rival suitors. Just days after Mr. Hefner made his bid, worth a whopping 40 percent premium over Playboy’s share price, the owner of Penthouse magazine
countered with an offer of $210 million. FriendFinder Networks, Penthouse’s parent, even said it would let Mr. Hefner continue to run Playboy magazine and live in the mansion.
But Penthouse’s offer, worth 13 percent more than Mr. Hefner’s bid, will likely be for naught. Playboy’s special committee of independent directors, which will weigh the offers, has only one real choice: To sell to Mr. Hefner, or not at all.
“Penthouse is just looking for publicity. They’re not in the picture,” Mr. Hefner wrote on
Twitter, quickly batting down its proposal.
But should the company be able to ignore a rival offer like that? Why should public shareholders be disenfranchised from competing bids when a controlling shareholder wants to take a company private?
David Miller, an analyst for Caris & Company, once said — morbidly — that the best thing that could happen to Playboy’s shareholders would be for Mr. Hefner to pass away.
“We believe Mr. Hefner’s death could result in a material stock price uptick,” Mr. Miller wrote in a note to investors before Mr. Hefner made his bid. Already several shareholders have filed a class-action suit against Playboy and Mr. Hefner seeking to enjoin them from pursuing a sale that the suit describes as “a self-dealing going-private proposal.”
To be fair, Playboy’s shareholders bought into the company with their eyes wide open. The company’s dual-class structure — and Mr. Hefner’s views about never selling — have long been widely known.
Mario J. Gabelli, a money manager who for some time has made investments in dual-class structured media companies, said that as much as he wished his investments would become “in play” when a controlling shareholder wants to take it private, he said, “we buy the stakes knowing this can happen.” (He is not a major Playboy shareholder. “We gave up on them long ago,” he said.)
But Mr. Gabelli’s experience with another media company,
Cablevision, may prove instructive. The Dolan family, which controls Cablevision, sought to take the company private several times. Cablevision would have made a ripe target for
Time Warner or others, but the family said it would not entertain outside bids.
“We didn’t trust them,” Mr. Gabelli said of the Dolans. He worried that the family would find a way to buy out the minority shareholders at a discount since there would be no competition and then turn around and sell the company for an ever bigger price tag several years later. Mr. Gabelli had sought a “clawback” so that public shareholders would be compensated if Cablevision was sold later. The deal was ultimately rejected and shelved.
What Mr. Hefner wants to do with Playboy is unclear. In one of his regular messages on Twitter, he wrote, “If I can satisfy my minority shareholders, I think taking Playboy private can help reinvigorate the brand. That’s how we began.”
His bid is being backed by Rizvi Traverse Management, a
private equity firm based outside Detroit that has a stake in the International Creative Management talent agency. Of course, if it acquires Playboy, Rizvi, unlike Mr. Hefner, will want to exit its investment at some point. At least for now, Mr. Hefner cannot see that day.
After hours of posting on Twitter, Mr. Hefner concluded, “I’ll be playing games with the girls tonight, probably dominos or Uno. Any game with Playmates is fun.”
It’s Friday, ya bastids!In we-can’t-make-this-stuff-up news, yesterday House Republicans killed a bill to help 9/11 responders who got sick after working in the disaster area. Hey there, Republicans, there’s more to “Never Forget” than just not forgetting. You have to give a crap too. The bill would have provided health care to 9/11 rescue and recovery workers who got sick after being exposed to the dust of the World Trade Center collapse. Many of the first responders developed severe respiratory problems. Well now there’s this to take their breath away. The GOP turned down money to help stricken heroes. Really, what’s next? Why don’t Congressional Republicans just drown a bunch of puppies up in the Reflecting Pool? GOP critics said the bill would create a “massive new entitlement program.” Entitlement? We’re talking about the heroes of 9/11. They ARE entitled—to at least this. The only thing Republicans want to spend money on is tax cuts for the rich. I guess that would help any stricken first responders who happen to be billionaires. Oh, and how was the bill to be paid for? By closing a tax loophole for foreign multinational corporations that incorporate in tax haven countries to avoid U.S. taxes. That’s right, Republicans care more for Swiss bankers than they do for American paramedics. Wow. Give them credit for sticking to their principles… though that really stretches the meaning of the word “principles.” Nice going, Republicans—you’ve just added insult to one of the worst injuries this nation has ever received.
