THE END OF AN ERA
Good morning, Term Sheet readers.
We start the morning with some news close to home: Meredith Corp will acquire Time Inc, the publisher Fortune, Time, People, and Sports Illustrated, in a deal backed by the Koch brothers. The transaction marks the end of an era for 94-year-old Time Inc.
Meredith Corp, which owns Better Homes & Gardens and Family Circle, agreed to buy Time Inc for $18.50 a share in a deal valued at $2.8 billion, including debt. The transaction is expected to close in Q1 of 2018.
This is at least the third time that Meredith has tried to buy Time Inc, including an attempt earlier this year that fell apart because the Des Moines-based publisher couldn’t secure enough financing. This time, though, things are different. Koch Equity Development, the private equity arm of Koch Industries, agreed to offer Meredith $650 million in preferred equity to fund the acquisition. Koch Industries is one of the largest privately owned companies in the U.S., and it is controlled by billionaire brothers Charles Koch and David Koch. The Koch brothers are known to be big backers of conservative causes.
Which brings me to the question on everyone's mind: What role will the Koch brothers play? Well, according to the Meredith release, the Kochs will not have a seat on the board and "will have no influence on Meredith's editorial or managerial operations." But as we all know, things are never so simple.
It’s too early to tell how things will shake out, but I can assure you that my colleagues at Time Inc have no problem speaking out against incorrect claims. Just a few days ago, President Donald Trump claimed he passed on being Time's ‘Person of the Year’ because he didn't want to agree to an interview and photoshoot. Alan Murray, Time Inc chief content officer and Fortune president, tweeted that there’s “not a speck of truth here.”
In today’s CEO Daily newsletter, Murray wrote:
"Early reports made much—probably too much—of the involvement of the Koch brothers private equity fund in financing the deal. The announcement yesterday made clear that the Kochs will be passive investors, and will not have a say in the management of the combined company or have a seat on the combined company’s board.”
Other details of the deal worth noting:
Big payouts: Time Inc execs will get nice payouts thanks to a new compensation structure approved earlier this year. The plan protects bonuses for top executives in the event that the company sells, and it extends the severance period and accelerates stock vesting for top executives in the event that they are fired after a sale. Upon closing the deal, Time Inc President and CEO Rich Battista will leave the company.
Scale: When combined, the Meredith and Time brands will have a readership of 135 million people and paid circulation of nearly 60 million. The deal will also create a digital media business with 170 million monthly unique visitors in the United States and more than 10 billion annual video views. In other words, the value comes from scale and eyeballs. Meredith executives stressed that benefit several times during this morning's call about the deal.
The price: Meredith’s offer to pay $18.50 per share is a 46% premium to Time’s closing price on Nov. 15. This is relatively high. Meredith had previously offered to pay roughly $18 per share, according to Reuters, when merger talks fell apart as the offer “fell short of Time’s price expectations of more than $20 per share.”
Synergy savings: Meredith expects to save up to $500 million in costs in the first two years of operation and plans to “aggressively pay down” debt by 2020. Combined, the companies posted $4.8 billion in revenue last year.
And if you’re worried about the future of journalism, don’t forget that tech startups are now publishing print magazines in hopes to “save print”...Too soon?
THE LATEST FROM FORTUNE...
• Victoria Beckham's fashion empire valued at $133 million in new funding round
• Bitcoin breaks $9,000 in another all-time high (by David Z. Morris)
• Thailand’s biggest IPO in 10 years is all about power (by Keshia Hannam)
• Everything you need to know about Cyber Monday (by Sarah Gray)
• Niantic, a San Francisco-based developer of a multiplayer augmented reality game, raised $200 million in Series B funding. Spark Capital led the round, and was joined by investors including Founders Fund, Meritech, Javelin Venture Capital, You & Mr. Jones and NetEase, Inc.
• ClimaCell, a Boston-based hyper-local weather forecasting company, raised $15 million in Series A funding. Canaan led the round, and was joined by investors including Fontinalis Partners and Square Peg Capital.
HEALTH AND LIFE SCIENCES DEALS
• LabGenius, a London-based synthetic biology startup, raised $3.66 million in seed funding. Kindred Capital and Acequia Capital led the round, and was joined by investors including Backed VC, Beast Ventures, Berggruen Holdings Ltd, and System.One.
• Abu Dhabi National Oil Co., or Adnoc, is seeking an IPO of up to $2 billion for its fuel-retaining unit, Bloomberg reports. The IPO is expected to pric Dec. 8 and begin trading Dec. 13. Read more.
• Ping An Good Doctor, a Chinese app for medical care, is readying an IPO of $1 billion, with J.P. Morgan and Citigroup working on the deal, Reuters reports. Good Doctor is backed by insurance giant Ping An. Read more.
• Odonate Therapeutics, a San Diego, Calif.-based oral chemotherapy drug maker, said it plans to raise $150.5 million in an IPO of 5.9 million shares at $24 to $27 a piece. In 2016, the firm posted loss of $3.1 million. Tang Capital Partners(54.3% pre-offering), Boxer Capital(14.7%), and Janus Capital Management(4.3%) back the company. Goldman Sachs, Jefferies, and Cowen are joint bookrunners in the deal. The company plans to list on the Nasdaq as “ODT.”
• Denali Therapeutics, a San Francisco, Calif.-based neurodegenerative disease treatment maker, said it plans to raise $150 million in an IPO off 8.3 million shares between $17 to $19 a piece. In 2016, the company posted loss of $87 million. Bratton Capital(28.1% pre-offering), ARCH Venture Fund(15.3%) and Flagship Venture Fund(12.3%) back the company. Goldman Sachs, Morgan Stanley and J.P. Morgan are joint bookrunners in the deal. The company plans to list on the Nasdaq as “DNLI.”
• Quanterix, a Lexington, Mass.-based protein detection test maker, said it plans to raise $49.5 million in an IPO of 3.3 million shares between $14 to $16 a piece. In 2016, the company posted revenue of $17.6 million and loss of $23.2 million. ARCH Venture Partners(21.8% pre-offering) and Bain Capital(12.7%) back the company. J.P. Morgan and Leerink Partners are joint bookrunners in the deal. Quanterix also added Cowen and Company to its list of underwriters. The company plans to list on the Nasdaq as “QTRX.”
• American Securities LLC agreed to sell SeaStar Solutions, a Litchfield, Ill.-based provider of aftermarket products and accessories for the recreational marine and related markets, to Dometic Group for $875 million.
• McAfee will acquire Skyhigh Networks, a Campbell, Calif.-based cybersecurity company. Financial terms weren't disclosed. Skyhigh Networks had raised more than $106 million in venture funding from investors including Thomvest Ventures, Sequoia Capital, Greylock Partners, and Salesforce Ventures.
• IK Investment Partners agreed to sell svt Group, a Germany-based designer and manufacturer of fire protection products, to Ergon Capital Partners. Financial terms weren’t disclosed.
FIRMS + FUNDS
• Techstars Ventures, a Boulder, Colo.-based venture capital firm, is raising $400 million for a new venture capital fund.
• Balderton Capital, a U.K.-based venture capital firm, raised $375 million for its new fund.
• Bhaskar Ghosh will join 8VC as a partner and chief technology officer.