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Primedia Takes About.com Offline

Primedia set out to make a splash in the financial community with its $700 million land-grab announcement of human-guided search portal, About, Inc. . The offline magazine publisher figured sprinkling a dash of dot-com zip to its business model might give its stock a little get-up-and-go. But following the announcement of the proposed deal, investors got up and went, sending shares of Primedia tumbling nearly 25%, while shaving almost $200 million from the value of the purchase price.

Under the terms of the deal, About.com shareholders will pocket roughly 45 million shares of Primedia; and prior to the announcement of the acquisition, the Internet search portal commanded a 50% premium. After jittery investors took shares of Primedia back behind the woodshed, the aforementioned premium settled closer to a paltry 10%, which might explain why About.com shares finished the afternoon up just 1%, despite rallying some 20% earlier in the trading day.

Primedia's chief executive, Tom Rogers, boldly sought to compare his own marriage of offline media with online new media to that of AOL -Time Warner's , opining, "While the AOL and Time Warner merger announced earlier this year created a mass media powerhouse of new and traditional media, the Primedia and About merger creates the leading model for the integration of traditional and new media niche content." Easy does it, Tom, let's not get carried away here. Rogers went on to gush, "With this transaction, Primedia has been transformed."

That remains to be seen, but Rogers does make some compelling arguments for why an acquisition of a Web property like About.com makes sense for his company. Primedia publishes more than 250 print magazines that range from Modern Bride to Seventeen. The offline media firm makes big bucks being in the niche business, and About.com's own business model would appear to make a snug fit. About.com employs a small army of lowly paid editors to create their own subject-specific guide site, each focused on a niche topic of interest. That added human touch to cataloguing the Internet has shaped About.com into a unique and highly compelling alternative to your typical bot-driven search portals.

From About.com's standpoint, this is a most favorable exit strategy. While it may be a far cry from the upstart's sugarcoated valuation just a few short months ago, that's exactly what facilitated this deal in the first place. Expect to see a budding trend start to unfold in this next year with more offline companies boosting their dot-com initiatives through a whirlwind acquisition of an online start-up. Valuations are relatively dirt cheap, and there are plenty of quality Internet plays eager to walk down the aisle. The offline company's stock price should benefit from a ready-made sexy Internet initiative, and the dot-com firm trades in its usual volatility for the security of a bellwether currency.

Hasty investors really ought to give this merger a chance. When Rogers excitedly proclaimed, "Niche is king," truer words were never spoken. That's been the case for years in the magazine business, and it's a developing trend in the Internet industry. Web sites that boast a narrow focus on a particular topic and cover that topic well, excel at attracting Web surfers growing tired of aggregators who try to be all things to all people. Rogers predicted that his merger would create a model for the integration of traditional and new media niche content. Looking forward, today's ambitious dreamer may end up tomorrow's philosopher.

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