Rival Tries to Trump Hef’s Bid for Playboy


Playboy Enterprises is
in play. FriendFinder Networks,
publisher of rival men’s magazine
Penthouse, lobbed in a $210
million (about $6.25 per share)
offer for the iconic brand in an
attempt to trump founder Hugh
Hefner’s going-private offer made
less than a week before.

In a letter to Playboy’s board
July 15, FriendFinder CEO Marc
Bell proposed a meeting with the
company on July 21 to hammer
out an agreement, adding that
FriendFinder would like to keep
Hefner on as a partner and retain
Playboy’s current management.

“We envision that following the
completion of the proposed transaction,
Mr. Hefner would retain editorial
control of Playboy magazine
and would be entitled to reside in
the Playboy Mansion,” Bell wrote.
“Our proposal provides an excellent
opportunity for the minority
stockholders of Playboy Enterprises
to realize liquidity for their shares
at a significant premium to market
values, provides a basis for future
growth and would reinvigorate the
company and enhance the legacy
of the Playboy brand.”

Hefner, whose $123 million offer
for the company he founded
more than 50 years ago is still being
evaluated by Playboy’s board
of directors, called the Friend-
Finder bid grandstanding, in a series
of Twitter posts last week.

Penthouse really isn’t in the picture,”
Hefner said via Twitter last
week. “I’m buying, not selling.”

On July 12, Hefner proposed
paying $5.50 per share for the remaining
stock in Playboy he doesn’t
already own. That price, a 40% premium
to Playboy’s share price, was
quickly exceeded by investors who
were anticipating an auction — the
stock closed at $5.55 on July 12, up
$1.61 each (41%). That sentiment
faded on July 13 — when the stock
dipped to $5.37 — and returned on
July 14 as the stock climbed back
to $5.51 each. Playboy shares were
trading at about $5.61 each (up 10
cents) in afternoon trading July 15.

Any rival bid would need Hefner’s
blessing — he owns 69.5% of
Playboy’s Class A common stock
and 27.7% of its super-voting
Class B shares. For that reason,
RBC Capital Markets media analyst
David Bank said the Friend-
Finder bid may be a moot point.

“This is an auction of one,” Bank
said. “Hef controls the vote. … Marc
Bell’s bid may be higher, but I don’t
know how much it matters.”

Hefner’s bid, which values
Playboy Enterprises at about $185
million, is backed by Birmingham,
Mich.-based Rizvi Traverse
Management, a private-equity
fi rm that has some small entertainment
investments, including
a stake in talent agency International
Creative Management and
movie studio Summit Entertainment.
Summit has produced the
popular Twilight saga movies.

Although Playboy has grown
substantially from the single
men’s magazine Hefner started in
1953 — the company now includes
adult-oriented pay-per view and
premium cable channels and merchandising
— it has been battered
by Internet websites that offer racier
fare at a fraction of the cost and
a perception that its cable content
is too pricey. On some cable systems,
a monthly subscription to
Playboy TV is required — priced
at about $11.95 per month — to access
on demand content, which is
available in four-to-six hour blocks
for another $12.

But what started out as the brand
for cool, sophisticated, pajama-clad
hipsters has become almost passé
over the years, and the company
has struggled to reinvent itself.


In 2007, then-CEO Christie Hefner
(Hugh's daughter) tried to reposition
Playboy TV as a lifestyle
brand, along the line of a HBO
or other premium channels. But
that strategy did not pan out.

In January 2009 Christie Hefner
resigned as CEO after more
than 30 years with the company.
Last year, Playboy was close
to a deal to be acquired by Iconix
Brand Group, owner of London
Fog and other brands, but
that deal was scuttled, reportedly
by Hugh Hefner himself. In the
meantime, Playboy has continued
its downward slide.

In 2009, revenue fell 17.7% to
$240.4 million from $292.1 million.
Domestic TV revenue -
which includes Playboy TV,
Playboy TV en Español and Spice
Digital Networks - has been in
steady decline over the past few
years. It dipped 19.3% in 2009 to
$50.5 million from $62.6 million
in 2008. In 2007, Domestic TV revenue
was $75.8 million, according
to Playboy's financial reports.

In the past year CEO, Scott
Flanders has tried to transform
Playboy into a licensing company,
farming out its bunny logo
for consumer products, locationbased
entertainment and marketing
events. And in the fourth
quarter, PEI initiated a restructuring
program aimed at downsizing
the company (it laid off
about 26 workers), outsourcing
magazine printing to AMI and
canceling some property leases.
While there has been some success
- first-quarter licensing revenue
was up 6.5% to $9.9 million from
$9.3 million in the prior year and
net losses were pared to about $1
million from a loss of $13.7 million
in the prior year - the company has
yet to return to its former glory.

FriendFinder, on the other hand,
has grown substantially over the
past few years, mainly by acquiring
and expanding its universe of
adult-oriented websites. Although
the company has thousands of social
networking and dating sites
ranging from BigChurch.com a
Christian online dating service, to
AdultFriendFinder.com, a website
where viewers can meet potential
sexual partners, its bread and
butter is racier websites targeted at
niche audiences, such as Bondage.com, BDSM.com and LikeMyNudephoto.com. The company had total
revenue of $334 million in 2008, the
latest full-year figure available.

FriendFinder filed documents
for a $220 million initial public offering
in January, but postponed
the deal because of unfavorable
market conditions. In its prospectus,
however, the company
noted that the bulk of its revenue
comes from adult-oriented businesses
and most of that revenue
comes from subscriptions - advertising
revenue accounted for
less than 1% of sales in 2008, according
to the prospectus.

But FriendFinder has struggled
in the publishing business as well.
According to its prospectus, revenue
at its Entertainment division,
which includes magazine publishing,
broadcasting and licensing,
declined 8.1% in 2008 to $24.9 million
from $27.1 million in 2007.