The New York Times
January 31, 2011
Hearst Agrees to Buy 100 Magazines From Lagardère
By JEREMY W. PETERS and ERIC PFANNER
Hearst Corporation, the American magazine giant that publishes Cosmopolitan, Esquire and Good Housekeeping, said Monday that it had agreed to acquire more than 100 magazines from the French publisher Lagardère in a deal that would make Hearst the second-largest domestic magazine company and greatly expand its international footprint.
Hearst’s offer was for 651 million euros, or about $890 million. The two companies have been trying to form a partnership for years but began negotiating exclusively only on Dec. 31. Now Hearst must deal with the complicated task of assuming Lagardère‘s disparate operations, which span 15 countries and involve various collective bargaining agreements.
Both companies stand to benefit from the deal, which is expected to close in the second half of the year. For Lagardère, which has been seeking to shed its sprawling international operations and focus more on domestic publishing and sports marketing, the deal demonstrates responsiveness to shareholder pressure.
For Hearst, which has lagged behind Condé Nast in the lucrative fashion and beauty advertising category, the deal offers considerable scale in that market. Hearst will acquire the American edition of Elle, which competes head to head with Condé Nast’s Vogue for ads.
The offer was also a strong sign that Hearst, which has other businesses in local television stations and cable syndication partnerships like A&E and the History Channel, still views magazines as a viable and important part of its growth, despite the challenges facing print publishing.
“Magazines are going to be a part of our future as far as the eye can see,” said Frank A. Bennack Jr., Hearst’s chief executive. “So the question for us was how do we strengthen our position in that regard? This seemed to fit us nearly perfectly.”
The agreement will bring some of the biggest glossy women’s fashion and lifestyle magazines under one roof, giving Hearst a stronger bargaining position with advertisers. In addition to Cosmopolitan, with a domestic circulation of three million, Hearst publishes Marie Claire, which has a circulation of one million. Elle circulates 1.1 million copies monthly in the United States.
Lagardère will retain the French edition of Elle, as well as the trademark, and will collect royalties from the international editions.
By itself, Lagardère’s international magazine business lacked the scale to compete effectively in the United States and other markets, its executives said Monday in a conference call. The problem became more acute in the recent downturn in advertising, with ad revenue at the company’s international magazines dropping more than 35 percent in 2009, executives said, compared with an 11 percent decline in France.
Lagardère, which also owns the Hachette publishing house and Paris Match magazine, shed a variety of assets that the company no longer considered strategic, including a stake in the carmaker Renault. The company also wants to sell a 20 percent stake in Canal Plus, the French pay television channel. Many of these holdings were assembled by the company’s founder, Jean-Luc Lagardère, a titan of French business who died in 2003.
With the proceeds from these moves, the current chief executive, Mr. Lagardère’s son, Arnaud, the company has moved into areas like sports management, with mixed results. Like Vivendi, another French media conglomerate trying to reshape itself, Lagardère has sometimes struggled to integrate its acquisitions, analysts said.
“The thing Lagardère seems to do best is to sell at a good price,” said Conor O’Shea, an analyst at Kepler Capital Markets in Paris. “The question is, what is their strategy? The strategy changes every few years, when they bring in a new band of consultants.”
The businesses that Lagardère has agreed to sell include 102 publications in 15 countries or territories, with 774 million euros in revenue last year.
In addition to the fashion magazines, Hearst will acquire Lagardère publications that will further diversify its portfolio. The deal includes Car and Driver, and Road & Track, the auto enthusiast magazines known as “buff books” by their loyal followers. Also included is Woman’s Day, a general interest magazine and one of the largest by circulation in the country, nearly four million copies each month. While the fashion publications allow Hearst to compete more formidably with Condé Nast, the acquisition of Woman’s Day will help strengthen Hearst against Meredith, publisher of Ladies’ Home Journal and Family Circle.
According to advertising revenue estimates — companies typically do not publicize what they make from selling ads alone — Time Inc. was the industry leader, taking in more than $4 billion last year. Condé Nast was second with $2.5 billion, followed by Hearst with $2.4 billion.
With the Lagardère magazines included, Hearst would have brought in $3.5 billion in ad revenue last year, according to estimates provided by Hearst.
More in Media & Advertising (1 of 27 articles)
Media Decoder: EMI Taken Over by Citigroup, Making a Sale More Likely
