PRM crushed:
thestreet.com
Primedia Shareholders Flee Oncoming Synergies
By Justin Lahart
Associate Editor
10/30/00 3:43 PM ET
"This is the most synergistic combination either of these two companies could
possibly enter into and creates a one of a kind company that no two other
companies could create."
Thus gushed Primedia (PRM:NYSE - news) Chairman and CEO Tom Rogers in
the press release that accompanied his company's announcement that it will buy
Internet compnay About.com (BOUT:Nasdaq - news). (For more about the
thinking behind the deal, see a related story.) But to judge by the market's
reaction Monday, the merger may never happen.
Under the terms of the deal, About investors will receive 2.3409 shares of
Primedia for each share of About they own. Based on Friday's closing prices,
that would be a nearly 50% premium. But the way things are going now, About
shareholders won't be getting nearly that much of a bump from the deal -- if it ever
closes. Primedia shares have been crushed on the news, and the premium that
About was going to garner has been all but erased.
"It looks like the Street doesn't like the deal," said one trader, in what might
politely be termed an understatement.
Or if not the Street, then shareholders in Primedia -- an important distinction.
Although Primedia has inked deals with CMGI (CMGI:Nasdaq - news) and counts
business-to-business Internet company Industryclick as a subsidiary, it is still
viewed as mostly a magazine publisher. Many of its shareholders are traditional
media investors who have soured on the Internet. So even though the deal is
immediately accretive -- even though About, with a 27% revenue increase in the
third quarter over the second, is one of the few Internet media companies that's
actually executing -- the deal gets no love.
Primedia was lately trading at down $4.38 to $10.88, a 28.7% haircut, which
would, under the terms of the deal, put About at $25.46. About, for its part, is
trading 7.2% below there, a sign that arbitragers, who seek to profit from the
spread between the acquirer's shares and those of the company to be acquired,
view the deal as risky.
"I'd say it's a very risky transaction," says Tom Burnett, president of Merger
Insight, a firm that advises clients on arbitrage situations. "There could be a
shareholder revolt if Primedia goes any lower. The vote [to approve the deal]
might be a little hairy."
It may be that Primedia acquiring About.com is sheer genius. It may be that,
together, the two will be able to gain share in a market that everyone had
assumed America Online (AOL:NYSE - news) and Yahoo! (YHOO:Nasdaq -
news) had completely sewn up. And it may be that Primedia's shareholders will
make it so we'll never know. |
