Well, at least Primedia (PRM) can say that it's in good company.
Shares in the traditional media company got pounded Monday when the company announced it was speeding up its adoption of new media by acquiring the Internet company
in an all-stock deal originally worth $690 million. In Monday afternoon trading, its shares had tumbled 28.7% to trade at $10.88, while About's shares rose 56 cents to $24.44. (For more about the relationship of Primedia's and About's stock prices, see a
The deal linking Primedia and About is essentially a small-scale version of another deal linking old media and new media: the pending megamerger of
. And, as in the AOL Time Warner deal, the buyer this time around is getting punished.
But is it warranted? Not necessarily. In fact, in their conference call this morning, Primedia CEO Tom Rogers and About CEO Scott Kurnit -- neither of whom are new to the world of new media -- made a rather convincing case that although their deal isn't exactly as large as the AOL-Time Warner transaction (it's roughly 1/200th as large), it makes sense as an alliance of old media and the new. Not as sexy, perhaps, but with enough opportunity to live in high style.
What About and Primedia say that they have going for themselves is targeted marketing. About.com is an umbrella Web site led by experts in 700 subject areas; among the listings under "C" are "Chess," "California for Visitors" and "Cheese/Appetizers." Meanwhile, Primedia's stable of consumer magazines range from
Soap Opera Digest
to obscure, more specialized titles such as
Canoe & Kayak
Civil War Times
Teddy Bear & Friends
It's About's and Primedia's contention that they'll be able to do what Time Warner does, but in these more specialized niches. About will be able to drive new subscribers to Primedia's print magazines, they say. Primedia's 1,600-person salesforce, dwarfing an About staff that only recently grew from 75 to 100, will be able to convert advertisers in its print magazines into Internet advertisers. About will be able to operate Web sites for magazines that aren't yet Web-enabled.
"Primedia has a
magazine and we have a Cats site," says Kurnit. "You can't find that kind of linkage at AOL."
In their conference, Kurnit and Rogers marshaled a number of stats and forecasts to prove their point. Some 97% of Primedia's advertisers, compared to 55% of About.com advertisers, come from outside the world of dot-com companies; the new company will be able to convert Primedia's non-dot-coms into Web advertisers, building Web pages for them, if necessary, "in literally minutes," says Kurnit.
Analysts' consensus is that Primedia will report EBITDA, or earnings before interest, taxes, depreciation and amortization of $307 million for 2001, Rogers says. The About transaction will add about $45 million to $50 million in EBITDA to Primedia in the first 12 months of the deal, he says; $45 million in an EBITDA hit from merger-related costs will be offset by About.com's expected 2001 EBITDA of $19 million, $49 million EBITDA improvement from cost savings, and $23 million from revenue synergies.
Meanwhile, the EBITDA growth rate for the company will improve to at least 20% annually, Rogers said.
So why is the market taking it so badly? Part of it is to be expected: in a merger deal, the buyer's stock usually drops -- usually 10%, in Kurnit's estimation. Beyond that, Kurnit suggests some stockholders get nervous when a company that they've bought in one line of business hooks up with another company in a completely different line. And that's not even taking into account the allergic reaction that many investors have to advertising-supported, consumer-focused Internet stocks these days. "When you do something sector-shifting like this, you're going to see investor movement," Kurnit says.