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Penthouse likely to bid for Hefner’s Playboy

- Associated Press - Monday, July 12, 2010

CHICAGO | Hugh Hefner's offer to take Playboy Enterprises Inc. private drew the promise of a competing bid on Monday from the owner of archrival Penthouse magazine. That raises the possibility that Playboy's 84-year-old founder could lose control of the men's magazine he started more than half a century ago.

Playboy said Monday that Mr. Hefner has lined up backing from a little-known private equity firm to buy the media empire shares that he doesn't already own and take the company private in a deal that values the organization at $185 million.

A few hours later, Marc Bell, the CEO of Penthouse owner FriendFinder, said his company will make a formal bid soon. Mr. Bell acquired Penthouse as part of a 2003 bankruptcy reorganization that also saw the resignation of founder Robert Guccione as the company's CEO.

Playboy, which Mr. Hefner launched in 1953, had its most popular years in the 1970s and has been struggling recently to stay profitable amid dwindling ad revenue and increased competition from free alternatives online.

The racy magazine, which still generates the largest share of the company's revenue, sold about 311 ad pages last year, down from 765 in 2000, according to the Publishers Information Bureau. Its average circulation has fallen by about a million over the same period to 2.02 million copies.

These days, most of the company's profits come from licensing its brand for consumer products such as men's underwear, women's lingerie, watches, energy drinks and slot machines.

Playboy's licensing unit reported income of $21 million last year, followed by $9.9 million from the company's television properties and just $1.6 million from the magazine and its website. Factoring in corporate overhead, costs related to layoffs and write-downs on the value of its assets, though, Playboy reported a net loss of $51.3 million in 2009.

Playboy's stock price has tumbled since hitting a peak in 1999 of more than $32. It has traded between $2.30 and $5.22 over the past year, but jumped on the potential buyout Monday. It was up $1.34, or 34 percent, to $5.28 in afternoon trading.

Based on the number of shares outstanding on April 30, Mr. Hefner's proposal offers $122.5 million, or $5.50 for each share he doesn't already own. That's a nearly 40 percent premium above Friday's closing stock price of $3.94.

Few details were available on FriendFinder's planned bid. Mr. Bell declined to provide details about his offer.

Penthouse was founded by Mr. Guccione in 1965 as a racier competitor to Playboy, but Mr. Guccione resigned in 2003 after the magazine's parent company filed for Chapter 11 bankruptcy protection. After Mr. Bell acquired the company, he spent $500 million in 2007 to buy Various Inc., a California company that runs some two dozen adult websites. The following year, Penthouse Media Group changed its name to FriendFinder Networks Inc.

FriendFinder, which also produces adult videos and licenses adult content, shelved its plans to go public earlier this year, blaming the poor market conditions. Executives had hoped to raise at least $200 million in the transaction.

Mr. Hefner, Playboy's chief creative officer who is known for his silk pajamas and young, curvaceous girlfriends, plans to team up with private equity firm Rizvi Traverse Management LLC for his deal.

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