Bloomberg Wins Bidding For BusinessWeek

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)


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Reader Comments

Bill Odum

October 13, 2009 05:37 PM

Bloomberg purchase of Business week, a good fit!

Karl

October 13, 2009 05:41 PM

I guess we'll all be saying goodbye to the 'comments section' under the BW articles someday soon, right? I'll bet that the 'comments section' is either eliminated or closely monitored by the "Powers That Be". Just watch! P.S. It was a great ride while it lasted! Go BusinessWeek!!! Good luck to everybody!!!

GLL

October 13, 2009 06:39 PM

With Bloomberg running BW there is at least a chance they might survive. The business press (including BW) seems intent on propping up the Wall St. manufactured bubbles and not questioning or investigating anything that upsets their cozy relationship with the guys who wiped out our economy. At least Bloomberg occasionally goes after people and tries to hold them accountable.

ZUrlocker

October 13, 2009 08:13 PM

If BW was generating $130m and losing $40m how hard would it have been to scale back and have a profitable company at $50m-$80m in revenue. Sure it would take cut backs, but this doesn't sound like rocket science. Selling it for $5m seems like a pittance.

--Zack
www.guitarvibe.com

Nancy

October 13, 2009 08:27 PM

As a former BW employee on the editorial side, it's my greatest hope that Bloomberg understands what a jewel and true asset it has acquired. The caliber, character and quality of BusinessWeek's news reporting, editing, research, art department, and production personnel is simply awesome, and they have the awards to prove it.

Please, you Bloomberg folks, go for the brass ring with this acquisition, and really. think. hard. about the future and smart. business. development. choices for BW.

Don't do what everyone expects by simply downsizing. Give this a fresh, modern approach to print acquisition! Invent one!

The possibilities are truly endless to strengthen the bond with its one million-plus readership and grow beyond its domestic brand. Am I stating the obvious when I ask you to think about Latin America first?

Kick up some dirt! Go do some world-shakin'!

You've just inherited the right staff for that job.

GO BLOOMBERG! GO BUSINESSWEEK!

Mayor

October 13, 2009 08:30 PM

This is a good move as long as Bloomberg isn't assuming too many liabilities...The cash/equity amount is purely face-saving. This business is terrible in the digital age and BusinessExchange has been a fiasco under Roger Neal -- really the death blow to the online business, economically and strategically. The brand and traffic have real value, but it must be radically right-sized and redundancies need to be made very quickly.

Good luck!

Susan Rusk

October 13, 2009 08:34 PM

Wow! Good luck. It's funny how the Internet space is going into scale cost-savings mode in a big way...Scale is very important online. Killing BX should be an easy decision, consolidating infrastructure, technology groups, and editorial...Lot's of very quick hits to rightsize newco.

Bigmunny

October 13, 2009 08:57 PM

This sucks. BW was one of my favorite sources for objective, well researched news on technology and business. Now they'll be another stock pumping, hype machine.

patrick russo

October 13, 2009 09:47 PM

so sad and so happy in a way. I will not give up my subscription to the magazine for anything. it has always helped me understand the world economy for the past twenty years .
Hope it will fulfill this goal for years to come!!!

Terrey McBarf

October 13, 2009 10:10 PM

Having worked at both McGraw-Hill, with extensive dealings with BW, and at Bloomberg, all I can say is that the former are a big hot slug of coffee that a lot of 'em ain't going to like. MHP and its "properties" are a case study in dysfunctional, stupid, shortsighted arrogance. Bloomberg is quite the opposite and a crown jewel among American companies.

Joe B

October 13, 2009 10:17 PM

Business week is an outstanding objective Business magazine that obviously has been impacted by the internet revolution. I hope the quality of the publication continues although it is likely to be an online magazine rather than one you buy a hard copy of.

Edward Foreman

October 13, 2009 10:45 PM

Is the amount of purchase correct? $2M-$5M for the entire Business Week company?

publicsquarespirit

October 14, 2009 12:05 AM

If you watch Michael Bloomburg carefully in regards to public affairs he appears to espouse a moderate Republicanism natural to Wall Street, and New York state. I'm hopeful for that very reason that one of the finest business mags in the world will thrive under this "marriage". The real tragedy would have been this magazine being gutted, and tossed aside on the scrap heap of history. Good luck Business Week! (Thank God Rupert Murdoch hasn't gotten his hooks in this one.)

Veronica

October 14, 2009 12:22 AM

I'm glad BusinessWeek was bought by an equally good source of business and financial news and information.
BusinessWeek is my favorite business magazine. I'm glad it's not folding up.
Good luck to the BusinessWeek-Bloomberg team.

John

October 14, 2009 12:28 AM

Thank goodness! Finally BW will have real reporting again...and guys remember that if you are going to have a Apple blog, you should really have a GE, IBM, HP, Nokia, RIM, Genentech etc.. blogs as well. Apple is good, but not so good as to deserves its own blog ok!

Anup Pandita

October 14, 2009 02:17 AM

Press articles indicate $2 million to $5 million to be the 'cash down' payment. The total consideration, including the liablities and 'severance payments' assumed is more in the range of $40 to $60 million. That is still a far cry from the $1 billion or so valuation that the business was ascribed at the peak of the dotcom boom in 2000.

olegilyin

October 14, 2009 02:57 AM

amount seems really strange

Reeves

October 14, 2009 03:36 AM

Please maintain Jack & Suzy Welch section

Leslie

October 14, 2009 03:41 AM

As a former Bloomberg employee, I fear that many talented BW employees will be let go. Bloomberg has a long history of "managing out" or running off great talent to prevent some salaries from getting too high or to prevent thinking "out of the box." Many of these ex-employees end up at better publications.

Management at Bloomberg has always been a weak point. I hope the entrenched vassels will let BW be BW.

m.r.

October 14, 2009 04:30 AM

BW deserves to live! purchase will be good for both parties. perhaps a revenue method will be found for BW to enhance profit. and I dont mean subscription!

R

October 14, 2009 06:21 AM

Not bad at all, Bloomberg is a respectable news website and so is BW, though Bloomberg is more professional. Wish them the best and hopefully Bloomberg will not layoff / reemploy them in other parts of his company.

Halozcel

October 14, 2009 07:29 AM

Did Ellen Braitman and Kathleen Hays come to BusinessWeek.I couldnt see them on screen.

jaderdavila

October 14, 2009 08:32 AM

news gathering better consolidate
too many companies fighting for peanuts
this industry lives off advertising
and there arent many nowadays
luckily the chinese are not interested

Peter Mullen

October 14, 2009 08:48 AM

I've been an avid and devoted BW reader and subscriber for over 30 years. I sincerely hope the new owners keep the current format, objective editorial and analysis reporting. I dumped my Fortune and Forbes subscriptions long ago because of what they became.

bill

October 14, 2009 09:22 AM

As a former BN employee, I have to wonder why this deal makes sense. Just a few years ago top management vowed that consumer-facing businesses were not the core. Now what makes the consumer side so valuable? It's a declining, commoditized business without much of a future. I suppose they got the assets so cheap it was irresistible. But journalists beware: Working for BN can be a mind-numbing experience punctuated by endless rules and a reward system that punishes anyone who thinks outside the box or fails to genuflect to the powers that be. Good luck.

sam

October 14, 2009 09:55 AM

The current leadership of BW will be the first to go.

I stopped subscribing more than 20 years ago when an older generation was replaced by a new crop who knew very little about the real world of business.

Basically, the reason why BW was hard to sell is because it had been run into the ground.

Wes

October 14, 2009 09:55 AM

Great news! I've been watching the BW magazine die a slow death since I started to subscribe in 1997. 2007-2008 were the dark years with little original content and the magazine was getting so thin it wasn't worth reading. Recently the articles have been better and I am eagerly awaiting a return to the "weekly book" of Business we had back in 1999/2000.

Bloomberg is a great source of news and between them and Reuters there is no more sources needed.

Hugo van Randwyck

October 14, 2009 11:26 AM

Best wishes for the future. I have enjoyed reading Business Week for years, both in print and online. It has managed to give useful frontline ideas for improving business performance and areas to find new ideas - well done! It could be an idea for the new owners to encourage articles tracking the root cause of the housing bubble, and have journalists ask these questions of politicians. Maybe also ask readers for a poll of layouts of previous BW magazines, which they prefer - and also if they prefer any sections which may have been removed. Well done for trying new ideas. Could BW write an article, maybe using the Jim Collins book, and see if there is any relevance? Has BW looked at overseas health tourism to reduce costs? Have there been ideas which haven't been implemented?

RATAN

October 29, 2009 12:04 PM

2-5m$ is it worth of a business week.

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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.

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