Reader’s Digest Association Inc., publisher of one of the most widely read U.S. magazines, on Thursday said it had agreed to a $1.6 billion takeover offer from an investor group, sending its share price up sharply.
Buyout firm Ripplewood Holdings leads the investor group, which will pay $17 per share, a premium of nearly 10 percent to Reader’s Digest’s closing price on Wednesday.
With the deal, Ripplewood adds to its investments in media, where buyout firms see potential to profit from the business upheaval caused by a migration of audiences to the Internet and other outlets.
In the publishing industry alone, Tribune Co. is weighing at least three private equity bids, or a possible sale of newspapers on an individual basis. Private investors have also acquired newspapers, including the Philadelphia Inquirer, from other owners.
Reader’s Digest, best known for its namesake magazine, has faced the same types of problems that are hurting many peers in publishing, from long-standing declines in circulation to heavy competition for advertising dollars from new media.
Last month, the company posted a quarterly loss of $26.7 million.
Including assumed debt, the investor group’s purchase is worth $2.4 billion and is expected to close in the first quarter of 2007.
Published in 21 languages, Reader’s Digest magazine has a monthly circulation of about 18 million and an estimated 80 million readers worldwide.
But it has suffered from the perception that its appeal is limited to an older demographic than the 18-to-49-year-olds whom advertisers covet.
The company itself has tried in recent years to win over investors with a redesign of its flagship magazine, the introduction of new publications, and cost cutting that included layoffs and the sale of its headquarters.
“We look forward to working with the Reader’s Digest team to further develop and strengthen the company’s robust collection of assets,” Ripplewood Holdings Managing Director Robert Berner III said in a statement.
Ripplewood already has investments in Direct Holdings Worldwide, a direct marketer of entertainment products, and WRC Media, which publishes educational materials.
The investor group also includes J. Rothschild Group, GoldenTree Asset Management, GSO Capital Partners, Merrill Lynch Capital Corp. and Magnetar Capital.