Primedia Shareholders Flee Oncoming Synergies - TheStreet

"This is the most synergistic combination either of these two companies could possibly enter into and creates a one of a kind company that no two other companies could create."

Thus gushed

Primedia

(PRM)

Chairman and CEO Tom Rogers in the press release that accompanied his company's announcement that it will buy Internet compnay

About.com

(BOUT) - Get Report

. (For more about the thinking behind the deal, see a

related story.) But to judge by the market's reaction Monday, the merger may never happen.

Under the terms of the deal, About investors will receive 2.3409 shares of Primedia for each share of About they own. Based on Friday's closing prices, that would be a nearly 50% premium. But the way things are going now, About shareholders won't be getting nearly that much of a bump from the deal -- if it ever closes. Primedia shares have been crushed on the news, and the premium that About was going to garner has been all but erased.

"It looks like the Street doesn't like the deal," said one trader, in what might politely be termed an understatement.

Or if not the Street, then shareholders in Primedia -- an important distinction. Although Primedia has inked deals with

CMGI

(CMGI)

and counts business-to-business Internet company

Industryclick

as a subsidiary, it is still viewed as mostly a magazine publisher. Many of its shareholders are traditional media investors who have soured on the Internet. So even though the deal is immediately accretive -- even though About, with a 27% revenue increase in the third quarter over the second, is one of the few Internet media companies that's actually

executing

-- the deal gets no love.

Primedia was lately trading at down $4.38 to $10.88, a 28.7% haircut, which would, under the terms of the deal, put About at $25.46. About, for its part, is trading 7.2% below there, a sign that arbitragers, who seek to profit from the spread between the acquirer's shares and those of the company to be acquired, view the deal as risky.

"I'd say it's a very risky transaction," says Tom Burnett, president of

Merger Insight

, a firm that advises clients on arbitrage situations. "There could be a shareholder revolt if Primedia goes any lower. The vote

to approve the deal might be a little hairy."

It may be that Primedia acquiring About.com is sheer genius. It may be that, together, the two will be able to gain share in a market that everyone had assumed

America Online

(AOL)

and

Yahoo!

(YHOO)

had completely sewn up. And it may be that Primedia's shareholders will make it so we'll never know.