Posted by: Tom Lowry on October 13, 2009
Bloomberg LP, the global financial data and news empire created by New York City Mayor Michael R. Bloomberg, is the winning bidder for BusinessWeek.
Terms of the offer will not be disclosed by Bloomberg and BusinessWeek parent McGraw-Hill Cos. But knowledgeable sources say that Bloomberg’s cash offer is in the $2 million to $5 million range and that it has agreed to assume liabilities, including potential severance payments. It remains to be seen how much of the magazine’s 400-plus staff Bloomberg plans to cut, but reports of a planned scorched earth campaign are overblown, say sources. BusinessWeek editor-in-chief Steve Adler told his staff shortly after the deal was announced Tuesday that part of the deal guaranteed that McGraw-Hill benefits would be extended to employees for one year after the deal closes.
If the deal closes as anticipated by Dec. 1, it will be unprecedented for both buyer and seller. For Bloomberg, buying BusinessWeek will be its first major acquisition ever and a significant departure for a 28-year-old company nurtured on a “build, don’t buy” culture. “The BusinessWeek acquisition will yield huge benefits for users of the Bloomberg terminal, for our television, online and mobile properties,” says Daniel L. Doctoroff, president of Bloomberg LP and a former deputy mayor of New York City appointed by Mayor Bloomberg. “We couldn’t be more excited…We are not buying BusinessWeek to gut it. We are buying it to build it.”
The deal also signals a shift by Bloomberg into more consumer-focused media. “The reporting and analytical resources of Bloomberg and BusinessWeek are unparalleled in their ability to deliver timely, distinctive and credible content to an influential and highly sought-after audience,” says Bloomberg LP Chairman Peter Grauer.
BusinessWeek, launched 80 years ago, will give Bloomberg entrée to a much larger business audience of corporate executives and senior government officials, beyond what has been its sweet spot of catering to Wall Street and the professional investor community. And by broadening that reach, it will allow Bloomberg to deliver a new breadth of information that will help make its main business — data terminals — even more attractive to potential subscribers of those terminals. “We are uniquely positioned to preserve and build the market presence of BusinessWeek,” says Norman Pearlstine, Bloomberg chief content officer and a former editor-in-chief of Time Inc. and executive editor of The Wall Street Journal. “Our shared values and complementary resources give us the editorial and technological expertise, data, analysis and depth of reporting to create a new model for the business weekly.” Pearlstine will become chairman of BusinessWeek and serve as liaison between the magazine and the Bloomberg news staffs. A BusinessWeek publisher and editor-in-chief will report to Pearlstine.
BusinessWeek, whose logo will eventually incorporate the Bloomberg name in some still-undetermined way, will continue to publish weekly in print and around the clock online. The goal will be to substantially boost the magazine’s editorial pages. It still hasn’t been decided whether Bloomberg and BusinessWeek will maintain separate Web sites or be morphed together as one. The sites combined attract more than 20 million unique visitors monthly and log roughly 100 million page views. Combined revenues of the sites alone are $60 million. What's more, the BusinessWeek brand will be used aggressively to bolster Bloomberg TV, radio and mobile operations. Andy Lack, a former president of NBC News and more recently chairman of Sony BMG Music Entertainment, was recruited last year to oversee those multimedia businesses.
For McGraw-Hill, shedding BusinessWeek means parting with one of the most prominent brands in its stable of businesses. The transaction comes at a tumultuous time when much of McGraw-Hill's senior management is focused on the heavy scrutiny of its Standard & Poor’s credit rating unit. The magazine, for generations coveted as a company jewel by the founding McGraw family, first began publishing a month before the stock market crash of 1929. “I am very proud of the tremendous contributions BusinessWeek has made to The McGraw-Hill Cos. throughout its rich history," says Harold “Terry” McGraw III, CEO of McGraw Hill. "It is a truly outstanding franchise and the best source of business reporting in the world. We are pleased that we have reached an agreement for BusinessWeek to be acquired by Bloomberg, which shares the same high standards for editorial independence, integrity and excellence that have long defined BusinessWeek."
It is not clear how directly involved Mayor Bloomberg was in the sales process. When first elected in 2001, he vowed to maintain an arms-length relationship with his business. But sources say he is briefed on all major decisions at Bloomberg LP. A spokesman for the mayor declined comment and referred all questions about the sale to Bloomberg LP. The mayor is known to be a big a fan of BusinessWeek, as well as Aviation Week, another McGraw Hill publication (Bloomberg is a licensed pilot).
Bloomberg, who faces a re-election bid for a third term on Nov. 3, is a friend of McGraw’s, leaving one to wonder how often over the years they discussed potential deals between their respective companies. The two own houses not far from each other in Bermuda. McGraw-Hill approached Bloomberg about buying the magazine as early as February, according to sources, but Bloomberg passed. Even after formal presentations were made to numerous interested parties, Bloomberg re-emerged as a surprise contender. BusinessWeek President Keith Fox told the magazine's staff late Tuesday afternoon that his senior team held 25 meetings with prospective bidders and answered 420 due diligence requests throughout the sales process. He ensured his colleagues that there would be no layoffs between now and the close of the deal.
Started in 1981, the privately held Bloomberg continues to derive nearly all of its $6.3 billion in annual revenues from leasing data terminals to major investment firms. Subscribers rent the terminals for $1,500 a month and up. The company has 280,000 terminal leases across the globe. Since Bloomberg created a news service in 1990, under the tutelage of Wall Street Journal alumnus Matthew Winkler, it has continued to hire journalists, despite economic downturns, including most recently high profile editors and reporters from The Wall Street Journal and Time Inc. It now employs about 2,200 journalists globally at a news service, magazine, radio and TV stations. Bloomberg Markets magazine will continue to publish as its own stand-alone publication, say sources.
BusinessWeek will present Bloomberg with the rare challenge of having to integrate an outside operation. The company’s only other acquisition was in 1987 when it acquired a three-person operation in Princeton, N.J. called Sinkers, which published arcane bond data. BusinessWeek staff will be moved across town and into Bloomberg’s Manhattan headquarters by May 1. Officials from Bloomberg will begin meeting with the BusinessWeek staff in the coming weeks. (Bloomberg was advised by investment bank The Quadrangle Group. The sale was conducted for McGraw-Hill by Evercore Partners. The code name for the deal was Opera.)
Even though BusinessWeek has posted losses for several years, McGraw-Hill continued to invest in the magazine, including new redesigns and most recently by betting heavily on a social networking venture called the Business Exchange. McGraw-Hill has invested more than $20 million into the site over the past two years, but BX has fallen far short of revenue and online traffic goals.
At the same time, BusinessWeek was particularly hard hit by the Great Recession. Its losses this year are projected to be in excess of $40 million (a figure that includes certain overhead costs like rent). Revenues for this year are expected to be about $130 million. At its peak in 2000, BusinessWeek had a record 6,000 ad pages and operating profits of $100 million. Some analysts at the time valued the magazine at $1 billion.
As recently as this spring, BusinessWeek management presented the parent company plans to reduce costs drastically, including large staff reductions. But CEO McGraw and his board of directors made the decision to put the magazine up for sale instead. McGraw’s mantra to his investors has been that he wants businesses with “consistent, sustainable, earnings growth.” In the end, he clearly didn’t think BusinessWeek’s problems could reverse themselves as part of the parent, prompting a difficult decision for the CEO since he and other family members loved the cachet of owning BusinessWeek. Some analysts, however, have projected that by shedding the losses from BusinessWeek, McGraw-Hill could add as much as a dime to its earnings per share in 2010.
The sale of BusinessWeek also raises questions as to how committed McGraw-Hill will remain to the media business. In addition to BusinessWeek and several trade publications, the company owns four local TV stations affiliated with ABC and five Spanish-language channels. If those businesses are divested, the remaining major businesses will be S&P and textbook publishing. How long before the Street may wonder why these two businesses need to be together?
(This blog post was edited by senior editor Robin Ajello)
The media, entertainment and marketing worlds continue to shapeshift on a near-daily basis, as new forms arise and old assumptions erode. Where is it all going? No one really knows. But on this blog BusinessWeek’s media writers Tom Lowry and Ron Grover promise to provide ample helpings of scoop, provocation, and sharp analysis as they track and annotate this constantly changing terrain.