BusinessWeek’s Pitch to Investors: Buy Us, Then Fire Us
by Peter Kafka
Posted on September 15, 2009 at 9:10 AM PT
How do you sell a business magazine that lost $43 million last year? Convince buyers that they could fire 20 percent of the staff without missing a beat.
That’s part of the pitch that Evercore Partners has been making to investors on behalf of McGraw-Hill (MHP), which wants to dump BusinessWeek.
The New York Times’s Stephanie Clifford gott her hands on the offering memo Evercore has been circulating to potential bidders, who are supposed to submit offers by today. Reportedly in the mix: Bloomberg; ZelnickMedia; New York Magazine owner Bruce Wasserstein; OpenGate Capital, which bought TV Guide last year for $1 plus debt; and Platinum Equity, which is bidding for the New York Times’s (NYT) Boston Globe.
In a story published yesterday, Clifford reviewed the magazine’s financials, which are miserable. Ditto for the magazine’s Web site. Today she points out Evercore’s plan to entice buyers: A ready-made layoff plan that would lop off 20 percent of the magazine’s staff.
The Evercore memo says the layoffs are actually “in process,” an assertion that seems to surprise BusinessWeek’s staff, which has seen no sign of layoffs. So best to interpret these numbers as suggestions, not plans. That said, here are Evercore’s suggestions:
In editorial, 55 of 217 positions are supposed to be eliminated. Of sales, 9 of 69. Of marketing, 6 of 26. Of technology, 8 of 33. Of circulation, just one of 19. And in the “other” category, 6 of 57. That’s a total of 85 eliminations among 421 jobs – about 20 percent – leaving 336 BusinessWeek employees.
“BusinessWeek will establish a leaner, entrepreneurial staff without affecting the brand, positioning of the franchise or revenue outlook. The eliminations of editorial staff are primarily in editorial support operations (makeup and copy desk), but also include a reduction in the number of journalists to reflect the smaller folio size of the publication. The positions eliminated in sales are primarily for sales support, but also include some consolidation of integrated sales account managers. The remaining positions eliminated are in other business support functions.”
A logical question: If these cuts are so easy to make, why hasn’t McGraw-Hill made them? I know that this strategy isn’t uncommon in auctions: Many moons ago, Time Warner (TWX) held off making cuts at its music unit so that a new buyer could do it itself, and that’s exactly what Edgar Bronfman Jr. and crew did once they got their hands on Warner Music Group (WMG). But the practice still baffles me. Anyone?
Comments
Look at the other side. If they do everything possible to put the magazine in order and nothing works, then prospective buyers might conclude that it’s hopeless, or at the very least, extremely hard. By leaving the cuts to them, McGraw Hill gives them a glimmer of a turnaround on the horizon. What’s more, the new owners might want to keep different people. Right now, it looks like Bloomberg and a couple private equity firms will be bidding. They probably have different visions for the franchise, and would be interested in different types of employees.
Posted by Stephen Baker at September 15th, 2009 at 11:24 amThanks Stephen (and good luck!). Early reader consensus – via email and a commenter who wouldn’t use their real name — is that the main reason not do the cuts is because they’re difficult and unpleasant, and it’s better to offload that work — as well as severance charges, etc — onto someone else. Anyone else want to weigh in?
Posted by Peter Kafka at September 15th, 2009 at 1:15 pmWell, severance charges are certainly an issue. But in many cases like this, the seller promises to honor them if employees get laid off in first several months of the new regime. If that were the case, McGraw Hill would still get stuck with the tab, even if the buyer handled the dirty work. In fact, conceivably McGraw Hill could carry out the layoff on the buyer’s behalf before the deal officially goes through.
Posted by Stephen Baker at September 15th, 2009 at 2:55 pmbusinessweek got what was coming to them after years of poor writing, shoddy research by its writers (i recall a story that the writer failed to check sources independently)…etc. The world doesn’t need businessweek, the era of that kind of journalism is over
Posted by Sam Harrison at October 1st, 2009 at 2:16 pm