Hugh Hefner, the pajama-clad entrepreneur who built a brand on nude centrefolds, wants his company Playboy Enterprises Inc. to cover up.
Playboy announced Monday that Mr. Hefner had made an offer to take the company private, with a bid to buy all outstanding shares for $5.50 (U.S.) each. That values the company at roughly $185-million.
The announcement cited “Hefner's concerns for, amongst other matters, the [Playboy] brand, the editorial direction of the magazine and [Playboy’s] legacy.”
That legacy began in 1953, when the first Playboy magazine was published with a nude Marilyn Monroe on the cover. Playboy Enterprises went public in 1971, and the magazine’s popularity peaked that decade with a circulation of 7.2 million.
But its flagship men’s magazine has been challenged by declines in advertising revenues and falling circulation. Last fall, the magazine cut its rate base – the minimum circulation numbers a publication guarantees to advertisers – to 1.5 million.
Playboy’s competitors have multiplied over the years, from lad magazines such as Maxim, to an increasing array of Websites devoted to the nude female form.
Playboy Enterprises is now focusing its business more on the licensing of products under its Bunny brand than on the declining magazine and television properties.
“The biggest problem for them has been that the magazine – the publishing business – has been losing money, as has the TV network business,” said Steve Marascia, an analyst with Capitol Securities Management, Inc. “They’re in the process of putting together a strategy to turn those around, and secondly to improve their revenue growth by increasing sales from their licensing and their branding, and also partnering with various businesses to get further involved in gambling operations.”
“They’re really moving to be a far more profitable lifestyle company than an adult entertainment company,” said David Bank, an analyst with RBC Capital Markets in New York. “From a financial perspective, that should be really productive.”
Mr. Bank suggested that Mr. Hefner believes the company is undervalued, and that he is attempting to buy it “on sale.”
Mr. Hefner is planning to partner with private equity firm Rizvi Traverse Management LLC for the transaction.
But Mr. Hefner faces a challenger to his bid: FriendFinder Networks Inc., which owns Penthouse. Chief executive officer Marc Bell said on Monday that he is prepared to make a competing offer for Playboy Enterprises, and would make an announcement late Monday or on Tuesday.
“It’s a great asset,” Mr. Bell said in an interview. “He [Mr. Hefner] has a fiduciary responsibility to all shareholders, not just himself. And if there’s a better offer out there, he has to take that into account.”
Asked if he would make a higher offer, Mr. Bell responded, “could be.”
Playboy’s 84-year-old founder, Mr. Hefner owns about 70 per cent of the Class-A shares in Playboy Enterprises and nearly 30 per cent of the B shares, giving him voting control, and an overall economic stake of approximately one-third of the company.
“One guy controls the vote, and if he doesn’t want to sell, he’s not going to sell,” Mr. Bank said. “I don’t know how you have a bidding war in an auction of one.”
Last year, Christie Hefner, Mr. Hefner’s daughter, stepped down as CEO of Playboy Enterprises after more than 20 years on the job, and was replaced by current CEO Scott Flanders. Rumours have swirled that the company was in talks to be sold, but according to the statement from Playboy Enterprises on Monday, Mr. Hefner “is not interested in any sale or merger” of the company he founded more than five decades ago.
