Monday, Source Interlink Companies, Inc. (SORC), a provider of merchandising and fulfillment services for home entertainment products, revealed a stock purchase agreement to acquire Primedia Inc.'s (PRM) Enthusiast Media division for about $1.2 billion.
To fund the acquisition, Source Interlink has secured a financing commitment from Citigroup Global Markets, Inc.
The Bonita Springs, Florida-based Source Interlink estimates the combined companies to generate about $2.4 billion in revenue and more than $180 million in EBITDA on an annualized basis. Source Interlink expects the deal to be accretive to adjusted earnings per share before one-time costs.
The transaction combines Enthusiast Media's, or EM's, industry-leading magazine content portfolio, containing over 70 magazine titles and 90 Web sites, with Source Interlink's premier magazine distribution and merchandising platform. As a result, the merger will create a leading vertically integrated media, publishing, merchandising and distribution company.
EM is considered to be one of the largest providers of print and digital media content to the enthusiast community, with more than 70 magazine titles, 90 Web sites, over 65 events, a television program, and 400 branded products.
It is also considered to be the #1 special interest magazine publisher in the U.S., with content brands including Motor Trend magazine, Automobile magazine, Hot Rod magazine. For fiscal year 2006, EM generated revenues of $524.8 million.
The transaction is expected to close mid-summer, subject to regulatory approvals and other customary closing conditions.
Once the transaction is consummated, EM will operate as a division of Source Interlink and will be headed by Steve Parr, EM's current president, who will report to Michael Duckworth, Chairman of Source Interlink.
Source Interlink chairman, Michael Duckworth, said, "Over the last several years Source has driven the consolidation of a fragmented and inefficient channel for the distribution and merchandising of home entertainment content at retail and the newsstand. This acquisition is a first step to leverage what we have built by transforming Source into a fully integrated media company with both print and digital content. EM's industry-leading special interest magazine titles and consumer Web sites diversifies our earnings streams and accelerates our growth."
On the sale of EM division, Dean Nelson, CEO of Primedia, said, "We are able to emerge from this auction virtually debt free and completely focused on our Consumer Source business."
For the recently concluded fourth quarter, Source Interlink reported a net loss of $36.8 million or $0.71 per share, compared to a profit of $2.5 million or $0.05 per share in the same quarter. Top line for the quarter was $482.9 million, up from $473.4 million in the year-ago period. For the full year, the company lost $24.7 million or $0.48 per share, compared to a profit of $12.9 million or $0.25 per share in last year. Revenues increased to $1.85 billion from $1.53 billion prior year.
In March, the New York-based Primedia, a media company, announced that its first quarter operating income was $7.1 million, compared to $5.4 million in the year ago quarter. Loss from continuing operations before income taxes was $20.7 million, compared to a loss of $26.5 million in the prior year period. Total net revenues for the first quarter were $80 million, compared to $81.4 million in the year ago quarter.
The company reiterated its expectation that in 2007, it will deliver mid single digit percentage Segment EBITDA growth. However, the company reduced its guidance for 2007 revenue growth from mid single digit percentage growth to low single digit percentage growth.
In December, Primedia agreed to sell its hunting, fishing and outdoor titles to InterMedia Partners LP for $170 million in cash.
Source Interlink ended Friday's regular trading session at $6.80, while Primedia closed Friday's trading at $2.49.
In the pre-market hours, Source Interlink is up 45 cents or 6.62% at $7.25 and Primedia is gaining 29 cents or 11.65% at $2.78.
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