Time Inc.’s (NYSE: TIME) small size isn’t stopping it from pursuing an acquisition of Yahoo! Inc.’s (Nasdaq: YHOO) core business. The $1.5 billion owner of magazines including People, Sports Illustrated, Time and Fortune, has heard a presentation from Citigroup Inc. bankers on pursuing a deal to merge with Yahoo, according to people familiar with the matter.
The idea is of real interest to Time Inc. Chief Executive Officer Joe Ripp, said the people, who asked not to be identified because the information is private. Citigroup hasn’t been retained, the people said.
Time Inc. would be competing with giants such as Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) for Yahoo, putting itself squarely in an underdog role to merge with the business. Still, Time Inc. may see it as a worthwhile effort, because it could pursue a structure with Yahoo called a Reverse Morris Trust, a tax-free transaction in which one company merges with a spun-off subsidiary, the people said.
Yahoo CEO Marissa Mayer wouldn’t stay with the company under a Reverse Morris Trust, one person said. Ripp, who became CEO of Time Inc. in 2013, served as finance chief and vice chairman of America Online and has ideas for Yahoo, the person said. A deal with Time Inc. would be a way for Yahoo not to sell when the company’s valuation is near its low point, the person said. Yahoo shares have dropped 29 percent in the past 12 months.
Under Mayer’s leadership, Yahoo has made several middle-market acquisitions—primarily startups--including its $640 million acquisition of video-advertising service BrightRoll Inc.; its acquisition of Web browsing technology company Rockmelt; and perhaps its most notable, the $1.1 billion acquisition of social media platform Tumblr. Other purchases completed under Mayer’s tenure include Summly, Loki Studios and Stamped.
A cash bid that’s high enough for the Yahoo board’s liking from a larger company would probably trump a Yahoo-Time Inc. combination, one of the people said. Representatives of Time Inc., Yahoo and Citigroup declined to comment.
Time Inc. is only interested in the Yahoo core business, the people said. Because of the advantageous tax benefits to a Reverse Morris Trust, Time Inc. could compete with larger bidders, the people said. Time Inc. is probably the right size -- slightly smaller than Yahoo’s core business -- for such a structure to work, the people said.
Time Warner Inc. spun off Time Inc. in 2014. June is the two-year anniversary of that spinoff. There are probably no tax-related hurdles regarding the timing of a deal because it’s unlikely Time Inc. and Yahoo had significant deal talks before the spin, one of the people said.
New York-based Time Inc. is interested in gaining Yahoo’s digital reach of more than 1 billion users around the world, said the people. Time Inc. is trying to transform its print-focused business as more readers get their news online and print circulation and advertising revenue decline. The company said this month it’s buying Viant Technology Inc., the owner of MySpace, to get more data to help sell targeted advertising. In a recent earnings call, CEO Ripp called the deal “game-changing for us.”
“Marketers are selecting media partners that have either data-driven capabilities or premium content,” Ripp said. “We will be able to deliver both in a single platform and will stand apart from those that offer just one or the other.”
Time Inc. almost merged with Meredith Corp. (NYSE: MDP) in 2013. Meredith is again looking for merger partners after its deal to acquire Media General Corp. (NYSE: MEG) fell apart earlier this year. Ripp knocked down the Meredith idea as counter to Time Inc.’s strategy in a Bloomberg TV interview Monday.
“If you look at Meredith, Meredith has both magazine and TV assets,” Ripp said. “We don’t really want the TV assets because we would have to buy more TV assets.”
He said Time Inc.’s plan now is to continue to build its media presence.
“The opportunity for Time Inc. is to continue to grow this business. We are the player of scale in this industry.”