November 12, 2010, 7:48 pm Mergers & Acquisitions
The Acquisition of Tina Brown
By EVELYN M. RUSLI
The partnership of Newsweek and The Daily Beast may be billed as a simple 50-50 joint venture, but many agree that the real target for the struggling weekly magazine is Tina Brown.
Ms. Brown, the storied and well-coifed editor who has led brands like Vanity Fair and The New Yorker, will now tackle the unenviable task of stitching together the money-bleeding Daily Beast and the profusely bleeding Newsweek, to create a media organization that makes money. According to The Wall Street Journal, The Daily Beast Web site is on track to lose $10 million this year. Newsweek — which was bought for $1 by the 92-year-old stereo mogul Sidney Harman in August — is expected to lose $20 million.
Facing a $30 million hole and a magazine that has suffered a string of high-profile defections, it is no surprise that the merger was sealed with a clank of coffee mugs instead of a champagne toast, as Ms. Brown noted in her announcement of the deal on The Daily Beast.
It’s time for Ms. Brown to get to work.
“This is less a strategic business combination than a way to hire a very good editor for a property that desperately needs one,” said Jonathan Knee, a senior managing director of Evercore Partners and the author of “The Accidental Investment Banker: Inside The Decade That Transformed Wall Street.”
According to Mr. Knee, the deal was a pure talent acquisition that nicely echoes Vivendi’s 2001 purchase of USA Network’s entertainment assets from Barry Diller, the current owner of The Daily Beast through his IAC/InteractiveCorp. Under the Vivendi deal, Mr. Diller was made chief executive of Vivendi’s Universal Entertainment while remaining chief executive of USA Network.
Although Mr. Knee said there is legitimate value in Mr. Harman’s decision to merge the companies in order to bring on a powerful, creative voice, the merger lacks the obvious synergies he has seen in other media deals. In particular, Mr. Knee said the Newsweek-Daily Beast deal stands in stark contrast to Bloomberg’s 2009 acquisition of BusinessWeek, a deal he is very familiar with. His firm, Evercore, was hired by McGraw-Hill, BusinessWeek’s parent company at the time, to sell the unit.
“There was obvious cost savings on the physical production and the distribution side,” Mr. Knee said. “Bloomberg had significant editorial assets for BusinessWeek. This deal doesn’t really have that.”
At Newsweek’s headquarters in Lower Manhattan, there are concerns that the merger will mean additional layoffs but there is a sense of optimism — or at least relief — according to some employees.
Newsweek’s co-managing editor, Dan Klaidman, said the mere addition of Ms. Brown’s name to the publication’s masthead should help resuscitate the brand. Though he also talked about the potential value of the overall Daily Beast property, the message was clear: In Tina Brown we trust.
“She brings a certain amount of ad pages just walking in the door as editor,” Mr. Klaidman said. “Tina Brown has enormous talent. Sshe can generate excitement.”
Roland DeSilva, a managing partner at DeSilva & Phillips (a firm that represented a failed bid for Newsweek earlier this year) agrees that Ms. Brown has the firepower to create a viable brand. She “will bring a fresh view for the editorial product and design, which is needed, because there’s been a great push-back by the reading audience,” he said. “It’s a very interesting combination with a dynamic editor.”
Still, whether that “interesting combination” will lead to sustainable profits remains a giant question mark. Ms. Brown is a master when it comes to courting attention and turning on the buzz machine, but as evidenced by The Daily Beast’s numbers, she has not proven her Midas touch on the Web site’s balance sheet.
“Neither of these properties right now is very large,” Mr. Knee said. “If the question is: By putting together two companies that aren’t very large and make no money, will it make money? There’s not a significant track record of that.”