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TheDeal: Newsweek Fire Sale Hindered by Liabilities

Stocks in this article: IACI

NEW YORK ( TheDeal) -- IAC/InterActiveCorp (IACI)'s News_Beast unit confirmed this week that it's already entertaining takeover bids for Newsweek within the first half year of its becoming a digital-only publication.

Tina Brown, Daily Beast's founder and Editor-in-Chief, and Baba Shetty, CEO of News_Beast (formerly The Newsweek/DailyBeast Co.), tried positioning the exploration of strategic alternatives for the 80-year-old newsweekly as more a look-see opportunity than the fire sale it's almost certain to be.

" IAC chairman Barry Diller has made the point that this process is about exploring options," the leadership duo wrote in a memo to News_Beast staff, responding to sale reports that first appeared in Variety. "We will only do this sale if it reflects the value we've created."

Few magazine insiders saw it that way, however, especially in light of Newsweek's $30 million or so in deferred subscription liabilities. This is what News_Beast must legally deliver to existing Newsweek subscribers in future issues or in a reasonable make-good publication or in cash.

An alternative would be bankruptcy, which would reduce these subscribers to unsecured creditors without much recourse. But as long as IAC seeks a sale of Newsweek, the liabilities will stand and the issue will most likely be how many millions Diller must pay for someone to take Newsweek and its attendant liabilities off his hands.

That there will be a someone isn't in serious doubt. At a small Newsweek reunion last week, some former staffers talked about trying to buy the newsweekly themselves, before even knowing it would soon be for sale. "Maybe Barry was having a drink in the back," one of them joked Wednesday, "and overheard."

A more likely scenario, according to Martin Walker of the magazine consultancy Walker Communications, would feature new money from new media. The precedent here is The New Republic when, a little over a year ago, Facebook Inc. co-founder Chris Hughes became the majority owner of the political journal in a quest, he told The New York Times, to protect "high-quality long-form journalism."

Newsweek wouldn't have to limit its journalism to long-form or, for that matter, to politics. As another magazine veteran put it, what's critical is the new owner "gets out from under Tina's editorial budget, puts together some very smart young journalists and creates something closer to The Week than any previous version of Newsweek."

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