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How Reader's Digest Bungled a Buyout

Reader's Digest (RDA - Get Report) is providing Wall Street with an abridged version of how not to do a corporate takeover.

But these useful tips won't be found in a recent copy of the publishing company's pocket-sized magazine. Rather, they are disclosed in a recent regulatory filing chronicling Ripplewood Holding's proposed $1.6 billion buyout of Reader's Digest.

The Pleasantville, N.Y. publisher reveals the private-equity firm twice offered to pay $18.50 a share for the company, almost 9% more than the $17 a share takeover price that Readers Digest's board ultimately agreed to in November.

It appears Reader's Digest's fumbling of the lengthy negotiations with Ripplewood may have cost shareholders up to $150 million in a buyout premium. The lower takeout price also raises questions about the performance of Goldman Sachs (GS - Get Report), the company's investment bank, in trying to auction the company to the highest bidder.

Officials with Reader's Digest and Goldman Sachs could not be reached for comment.

Reader's Digest, in a regulatory filing late Friday, discloses that in March it received an unsolicited proposal from Ripplewood to buy the company for $18.50. At the time, Reader's Digest shares were selling for $14.40. But the company's board rejected the proposal and Ripplewood's request to enter into a period of exclusive negotiations aimed at ending in a leveraged buyout.

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