What Is IAC Planning With Its Acquisition of Magazine Publisher Meredith?

IAC/Interactive Corp (IAC -2.18%) recently announced a deal to acquire the publishing segment of media company Meredith (MDP). IAC has a good track record coaxing growth out of its online brands, and this acquisition could be promising as well. In this Motley Fool Live segment from "Wheeling & Dealing," recorded Oct. 15, Fool.com contributor Toby Bordelon discusses the details. He's joined by Fool.com contributors Brian Withers and Nicholas Rossolillo.

Toby Bordelon: I want to hit our last deal. This is an acquisition that was announced a couple of weeks ago, I think first with a rumor, and about a week later, we got the official announcement. IAC, formerly known as Interactive Corp, but this is Barry Diller's company. I think he's still the Chairman.

IAC is buying Meredith Corporation, which you probably don't know the name Meredith, but I'm sure you know some of their brands. Meredith is a media company. They've got a lot of magazines, they've got some TV stations. Let me show you Interactive Corp. Interactive Corp was created in 1986. They were the company behind Match.com (MTCH -0.78%), back in the day. Match.com was fully spun off in July of last year. No longer a part of IAC. But that's, I think, their biggest claim to fame among investors. Some of that match.com was an early recommendation, I think, on Stock Advisor from David Gardner. Done very well.

IAC has got a pretty good track record with some of the companies it backs. Let's look at them. I want to show you this. Here are some of the brands that IAC currently has. Angie's List [Angi (ANGI)], everyone know Angie's List. Is like that of the HomeAdvisor market with various contractors. Angie and HomeAdvisor right here are in handy, are all under the same corporate umbrella now, all owned by IAC, but it's operated as one unit. You can see some of these brands on here. The Spruce, people may know. Care.com, I think, a former recommendation by the Fool if I'm not mistaken now under IAC. Investopedia, you guys use Investopedia from time to time? I'm sure many of our viewers have gone on there. They've like an online, I would say maybe a Wikipedia version of investment terms if you will.

Dotdash, let's look into this one. This is the entity that's going to be buying Meredith. They're going to put the stuff they're getting from Meredith under Dotdash. These are some of Dotdash's brand. Investopedia is actually a part of Dotdash. I look at these brands and I think to myself, I could see why they could use some more brands, some more help because none of these really grab me is like if you were to spin off Dotdash an independent company and say, this is what it is. I don't know if I'm that interested in investing, but OK. They have been successful. Dotdash has 14 brands. They have 17 consecutive quarters of double-digit growth. Brian, does that scare you when you hear that? [laughs] Seventeen consecutive quarters. Brian and I have experience with another company Under Armour (UA -1.97%) (UAA -2.34%) that had a seventeen-streak going of consecutive quarter of double-digit growth. When the wheels fall off, they fall off fast.

Brian Withers: They do.

Bordelon: I want to put it that way. So far so good for Dotdash. Let's look at Meredith. What IAC is getting, I keep saying Interactive Corp, but I think the official name now is IAC, also the ticker symbol. IAC is getting something called the National Media Group from Meredith. Let's look at Meredith's brands here. Let me show you this. These guys, I think you're going to recognize some of these. Now, Meredith produces a lot of magazines. Here are their brands. You guys see any you like? What's your favorite Meredith magazine? Do you see here core strategy?

Withers: We've had Parents Magazine in the past.

Bordelon: Parents. You may be beyond that now, though, Brian? Your kids are?

Withers: Yeah. I'm wondering if there's a coastal living or.

Bordelon: Well, there's a Midwest Living. They have Southern Living. I think Coast Living, there you go.

Withers: There it is.

Bordelon: Boom. There you go. What do you like, Nick? You got anything in here you like? Are you a fan of People Magazine maybe?

Nicholas Rossolillo: I do think I maybe have a couple of old copies of Travel & Leisure.

Bordelon: Look at this, if you have seen the Property Brothers, they got a magazine here. They also have Joanna Gaines, her magazine is published by Meredith. They get a lot of stuff. They have a lot of stuff going on here with their brands. Now, you're getting the sense. I think that a lot of these brands are targeted at women, and that's the case. The National Meredith group they are getting, publishes a lot of magazines. They also have a big online component.

But the idea here is you're going to take these brands, put them together with Dotdash. Dotdash is very big online, high-growth online, 100 million customers per month right now, they reach for their online stuff. They take these brands from Meredith, put them into Dotdash's online channels, their growth engine, and continue that growth, continue those 17 consecutive quarters. Keep on growing.

This is an all-cash deal, 2.7 billion. Works out to be about $42, a little over $40 a share for Meredith shareholders. What's going to happen, Meredith also owned a TV group, 17 local television stations. They reached about 11 percent of US households. They are in seven of the top 25 markets. Atlanta, Phoenix, St. Louis, Portland are some of those. This group is being sold to Gray Television (GTN -4.15%) at a $2.8 billion cash deal that was announced back in June. What's happening is the magazines and Meredith corporate is being put into this National Media Group as another subsidiary that's being spun off before this TV deal closes. That group is what IAC is getting. They're not getting TV stations, they're just taking the magazines and corporate. They're getting Meredith corporate, that's going with IAC. They'll be folded into Dotdash.

The new company is named fascinatingly enough Dotdash Meredith, [laughs] which is unimaginative but it's no trunk. We can be grateful for that. Then it's going to be led by the current Dotdash CEO, Neil Vogel. He's going to be the CEO of this group. Going forward, it will be one of the largest publishers in the United States when they are done. They are expecting that the combined company will reach 175 million online consumers, including 95 percent of US women. That's huge. Big reach with this. Will be ad-heavy. Both companies together over the past year have generated over a billion dollars in ad revenue. That's going to continue to be a big piece of that.

I think what this is really about is taking a more traditional publisher, combining with a fast-growing digital publisher. You've seen deals like that. Almost reminds me of the AOL Time Warner deal, where new media buying old media, except now, this, actually, makes sense in a lot of ways. I like it. I think I like this deal. It is expected to close early next year, I believe it's what they said. Or maybe let's see if I have this here, when are they expected to close? No, I don't see a lot of issues here. By the end of this year. They're expected to close by the end of this year. I don't see any issues. I don't think you're going to have any antitrust concern here. I don't think there's any regulatory issues beyond the normal pro forma approvals here. I wouldn't expect any issues.

The only issue I might say could happen is if the TV sale to Gray somehow blows up, Meredith would have to do something with that and that might trickle down into this deal too. Watch for that, but I haven't seen any news on issues with that deal either. I would expect us to go through without any issues. I think if you are an IAC shareholder, I think you think this is pretty good. We're getting a bunch of brands, we can make Dotdash more significant, pushing with those brands out. I think, if you're Meredith shareholder, honestly, probably a pretty good deal for you. You get a bunch of cash. Essentially you're cashing out if you are Meredith. They're selling this for cash to IAC. They're selling TVs for cash to Gray, and you're done. You got a bunch of cash. If you want to redeploy some into IAC, that's something to consider if you want to continue with these brands. But overall, I think it's a good deal. I don't see any issues. Interesting little thing that popped up about a couple of weeks ago.