Primedia Takes 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,
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 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 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’s own business model
would appear to make a snug fit. 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 into a unique and highly compelling
alternative to your typical bot-driven search portals.

From’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.

Any questions or comments, love letters or hate mail? As always, feel
free to forward them to kblack

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