Please ensure Javascript is enabled for purposes of website accessibility

Why Time, Inc. Shares Popped Today

By Evan Niu, CFA – Nov 27, 2017 at 11:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The publisher's rumored acquisition was just officially announced.

What happened

Shares of Time, Inc. (TIME) have popped today, up by 9% as of 11:15 a.m. EST, following the company's announcement that it would be acquired by Meredith Corporation (MDP). The deal had been rumored to be in the works earlier this month.

So what

Meredith will acquire Time for $18.50 per share through an all-cash tender offer, representing a 46% premium compared to the closing price on Nov. 15, 2017, before the deal started leaking to the media and driving up Time's stock price. The total transaction is valued at $2.8 billion, including Meredith assuming Time's debt and net of cash. The boards of both companies have unanimously approved the deal, which is expected to close in Q1 2018.

A stack of magazines on a table

Image source: Getty Images.

In line with earlier rumors, the Koch brothers are helping finance the deal. Meredith has secured $650 million through a preferred equity commitment from Koch Equity Development, but Meredith says that Koch Equity Development will have "no influence on Meredith's editorial or managerial operations."

Now what

The deal represents a consolidation of two of the largest magazine publishers, which generated a combined $2.8 billion in revenue in 2016. The new company will have a readership of 135 million, including paid circulation of 60 million. It will also bolster Meredith's digital position and ongoing push into video advertising.

Meredith estimates that it can generate cost synergies of $400 million to $500 million within the first two full years of operation, which will inevitably translate into layoffs. The transaction should be accretive to free cash flow in the first full year of operation, and Meredith intends on aggressively paying down debt to strengthen its balance sheet. The company says it remains committed to capital returns and annual dividend increases.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.