Playboy Enterprises Inc to go private (PLA), will Dell follow?

By: ispeculatornew
Date posted: 07.13.2010 (4:00 am) | Write a Comment  (5 Comments)

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Playboy (PLA) is one of the most famous companies in the world and certainly the most known company in the adult entertainment business but like many other media companies, it has been beat down by this new digital era and has been losing money every quarter. Mostly because of that, the company’s stock has been beaten and had been trading under 4$ until yesterday. What changed? Hugh Hefner, the infamous founder of the company has decided to take the company public and announced an offer to buy back remaining shares for $5.50, a 30% premium (take a look at Playboy’s chart at the bottom of this post)!!! Sounds like good news for shareholders right?

What does it mean?

Hugh Hefner has basically decided that it was not worth the effort to have Playboy listed on a US stock exchange. It does require a lot of money to do so because Hugh Hefner must actually buy back every outstanding share out there. Once that would be done, the company’s stock would be removed from exchanges. In this case, Hefner is partnering with Rizvi Traverse Management LLC for the transaction.  That company is probably providing capital at a decent interest rate to help Hefner make this movement.

Why?

There are many reasons to go private:

Company is undervalued: When a company is traded at a low price, it has major impact as it makes it very expensive for a company to have access to new funds without diluting the brand greatly. That is probably a major reason in this case. Playboy’s bid values the company at $185 million which still seems low and certainly seems low for a company with such a strong brand. The company has lost over $200 million in the past 2 years. Hugh Hefner thinks his company should be worth $1 billion and in that case buying it for $200 million certainly seems like a bargain.

Public companies are submitted to a lot of regulations: Not only do public companies have to consult with a board but they also need to submit many type of SEC filings that make it very costly. That is also why smaller companies usually tend to wait until it is necessary to become public. Companies like Facebook, Twitter and LinkedIn have all  been pushing back as much as possible their IPO dates because of all of the hassle involved.

Will it work?

Chances are that it will work because Hugh Hefner is a majority shareholder as he owns 69.5% of the company A shares and 27.7% of the company B shares. The major things that could slow him down are:

Financing: It is not clear yet if the all of the financing details for Hefner are completed. If not, there could always be a delay if he is not able to get the necessary capital. Chances are however that before making this public offer, Hefner was ready on his end

Rival bids: FriendFinder has already announced it would making a bid for Playboy. Hefner has already said he was not interested in any offer because he wanted Playboy to remain independent. Since he is a major shareholder, chances are that he will be able to get it done no matter what but this could complicate things for him.

New tendency? Is Dell next?

Michael Dell, the founder and CEO of Dell recently confirmed he did consider the possibility of taking Dell private because he thinks the company could operate more efficiently. Of course, that becomes much much more complicated to do with a company worth $25 billion such as Dell as the financing required would be extensive. Most likely, Michael Dell would need to partner with a private equity company to get such a deal done. What are your thoughts on such moves? Do they make sense? I cannot really see Dell going private even if the company’s stock continues to lose value but maybe time will prove me wrong.

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5 Comments

  1. Comment by The Financial Blogger — July 13, 2010 @ 11:18 am

    I would partner up with Dell ;-).

    I think it could be a good move, and going back public in 5 years?

    Seriously what is the reason behind having Dell going back private?

  2. Comment by IS — July 13, 2010 @ 3:56 pm

    @TFB – I’m guessing Dell does not appreciate the short term focus of investors and probably thinks the company is undervalued by the stock market.

  3. […] First Playboy, now … Dell? […]

  4. Comment by Beverly — July 14, 2010 @ 4:19 pm

    Learn to spell. The word is tendency, with two E’s. Makes you look ignorant.

  5. Comment by IS — July 14, 2010 @ 4:21 pm

    Corrected, thanks for pointing that out

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