Peter Foley/Bloomberg NewsHenry R. Kravis, co-chief executive of Kohlberg Kravis Roberts Company, which sold Primedia for $525 million.
7:12 p.m. | Updated
If you happened to stroll by the offices of the private equity firm Kohlberg Kravis Roberts Company on Monday, you might have seen Henry R. Kravis removing an albatross from around his neck.
The albatross was Primedia, the media business that K.K.R. has owned since the Bush administration — the first Bush administration.
Primedia, a publicly traded company majority owned by K.K.R., agreed to sell itself to the buyout firm TPG Capital in a deal valued at $525 million including debt. The sale, assuming it closes, will end K.K.R.’s 22-year stewardship of the company, making it the firm’s longest investment ever — and one of its least successful.
Private equity firms typically own a company for about five years before exiting their investment.
A spokeswoman for K.K.R. declined to comment.
In 1989, Mr. Kravis and his partners at K.K.R. formed K-III Holdings to acquire print media assets. Its first deal was the purchase of a book club division from Macmillan and other assets for $310 million. A couple of years later, it paid $600 million for nine magazine titles from the News Corporation, including New York and Seventeen.
The company went public in 1995, with K.K.R. retaining majority control. In 1997, K-III changed its name to the flashier Primedia. (“K-III’s a horrible name,” the late Bill Reilly, Primedia’s chief executive, said at the time.)
Then, just as the dot-com bubble was inflating, Primedia began an aggressive Web strategy. Under the direction of Thomas S. Rogers, a prominent media executive brought in by K.K.R., Primedia paid $690 million for About.com
in the fall of 2000. The next year, it spent $515 million on the American holdings of the magazine publisher Emap, whose titles included Motor Trend and Teen.
K.K.R. paid for all of these assets with nearly $1 billion of its own money. It borrowed the rest, racking up more than $2 billion in debt. The excessive leverage hobbled Primedia over the last decade as it wrestled with the inexorable decline of the print media business.
Facing the twin problems of a crushing debt load and an advertising downturn, K.K.R. was forced to disassemble Primedia. The buyout shop brought in its Capstone consulting group, which aggressively cut costs, shut magazine titles and sold the others, including the marquee properties New York and Seventeen. Indeed, Primedia has completely exited the magazine business.
Primedia announced in February 2005 that it had sold About.com to The New York Times Company for $410 million.
So what does TPG, which paid a 62 percent premium to Primedia’s closing stock price on Friday, see in Primedia? Today, the company’s main assets are real estate properties like ApartmentGuide.com and NewHomeGuide.com.
“Primedia is a leading resource for consumers in search of housing,” David Trujillo, a TPG executive, said in a statement. Mr. Trujillo also highlighted the continued shift away from print, adding: “We believe the company will continue to benefit from the continuing secular transition from print to digital media.”
As for Mr. Kravis, he and his investors lost money on Primedia, although a firm spokeswoman declined to specify how much. Using simple math, it would appear that K.K.R. funds lost several hundred million dollars on the deal. But private equity math is never simple. Over the last two decades, K.K.R. has earned back some of its investment by paying itself dividends and buying back debt.
K.K.R. also employed another private equity trick in selling Primedia. It offloaded the company to TPG, another buyout firm. These so-called secondary buyouts, in which a company is passed from one private equity shop to another, have a mixed reputation among investors.
At least no one can accuse K.K.R. of having a short-term focus.
Article source: http://feeds.nytimes.com/click.phdo?i=5e9f280b097f405b9597cab99a67217f
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