Stolen Thunder

Just when it seemed that IPC had sealed its acquisition of Gruner & Jahr, ending months of uncertainty about its strategy, NatMags stepped in to seize the German company’s UK magazines. The loss hits owner Cinven’s plans to strengthen IPC’s po

<b>Gruner & Jahr <b>Latest (six months to Dec 1999) <b>Highest <b>First Prima 421,412 1,072,284 (Dec 1987) 993,018 (June 1987). Best 471,735 987,160 (June 1988) 987,160 (June 1988) Your Home 181,263 201,607 (Dec 1998) 170,046 (June 1998) Focus 67,607 90,414 (June 1997) 85,432 (Dec 1996) Prima Baby 52,505 (first ABC) – –

Acloud will be engulfing King’s Reach Tower, the home of magazine publisher IPC Media, as its management team begins to weigh the full consequences of losing out to NatMags in the contest to acquire Gruner & Jahr’s UK stable of magazines. Many observers had prematurely welcomed reports that IPC was to buy the UK arm of G&J – which would have immensely enhanced its hold over the women’s market.

Only a few months ago, there were reports that venture capitalists Cinven had put IPC itself up for sale to take advantage of the high value of media stocks following the Time Warner/AOL merger, and that the planned flotation had been put on hold.

Talks with Telewest and others – including Bertelsmann, which owns 75 per cent of G&J, and Hachette – have so far failed to come to anything. Insiders claim the sale of G&J UK to IPC would not have been connected with any potential broader alliance with Bertelsmann.

With the possibility of a quick sale slipping away, Cinven – which provided most of the finance for the &£860m management buyout of IPC from Reed Elsevier in January 1998 – will have to re-examine the prospect of a flotation.

UBS Warburg media analyst Simon Mays-Smith says: “Cinven is going to have to get out sometime. It is a venture capitalist and not a long-term holder of businesses. It will be examining whether to sell or float.”

Buying G&J would certainly have fitted with IPC’s flotation plans. One industry insider says: “When you are moving towards an IPO (initial public offering), the City gets excited by growth – certainly organic, but more by acquisition. Companies find it difficult to build their business organically year on year.”

Last August, IPC announced it had secured a &£30m war-chest, although that would not have been enough to buy G&J outright. IPC would have needed to borrow more, adding to its long-term debt of about &£550m, to seal the deal.

Since buying IPC, Cinven has also agreed to a &£25m investment to help IPC build its new media interests.

IPC chief executive Sly Bailey says: “Cinven is a very supportive investor. It will be supporting a future round of investment for us in the next few months, which will be used to build the digital business and will be at least comparable with what we have already seen.”

Mays-Smith adds: “The aim of the G&J deal would have been to consolidate IPC’s position in the women’s weeklies market. It would then have been able to achieve blanket coverage in the sector and offer advertisers a one-stop shop.

“There would also have been synergy savings on paper buying and printing, and the new titles would have benefited from IPC’s distribution arm, Marketforce. It would certainly have been a good deal for IPC.”

The UK arm of G&J, which launched in 1986, has not lived up to initial expectations, following the success it achieved with women’s monthly Prima and the weekly Best.

The latest set of figures from the Audit Bureau of Circulations show falls across G&J’s portfolio, with Best down 5.9 per cent year on year to 471,735, Prima down 17.4 per cent to 421,412 and Your Home down 10.1 per cent to 181,263.

MediaVest client services director Nigel Conway says: “There are a lot of titles within the G&J stable that actually fit well with what IPC does – and does very well. They have solid circulations, but IPC could have addressed the decline – it has the experience and the marketing power.”

G&J had been on the verge of entering a new market with the launch of its first women’s glossy monthly magazine, Vital, aimed at women aged over 30. Scheduled for May, and now delayed until the autumn, the launch would coincide with that of BBC Worldwide’s Eve magazine.

Not a sign of defeat

Yet few see a sale of G&J UK as an admission of defeat. Mays-Smith says: “G&J is one of the largest magazine publishers in Europe. It is surprising that it’s pulling out of the UK, but I don’t think it’s a sign of failure. It is looking at its market position.”

The German giant is contemplating acquisitions in other, stronger markets, such as the US, and is even reported to be considering buying Reader’s Digest for &£4bn.

One media buyer says: “I don’t think it has gone that wrong – it’s more that it has recognised its place as a publishing arm of one large publishing group.

“There’s a sea change in the market and to build up a sizeable portfolio of titles you have to be prepared to make a significant investment. G&J may also think there are richer pickings in other countries – the UK market is incredibly competitive.”

The changing media landscape has also forced IPC to reassess its long-term strategy. The company has dropped the tag IPC Magazines, and replaced it with the broader description of IPC Media to reflect its operations in new media and other commercial businesses, such as exhibitions.

“We have moved from a magazine-centric to a brand-centric strategy and within that we are obviously media neutral,” says Bailey.

She has also made key promotions and appointments, including Philippa Brown as the company’s first marketing director, Georgina Crace as managing director of IPC advertising and Mike Soutar as managing director of IPC Music & Sport.

Bailey admits: “I am not sure that in the past the words creativity and innovation would have been synonymous with IPC – I hope that they will be in the future.”

The company has identified its core markets as women, TV, home and garden, leisure, and men’s lifestyle and entertainment.

Bailey adds: “A lot of people ask why we haven’t made acquisitions so far. But we now have a clear strategy – I am looking at acquisitions for the future and clearly David [Arculus, IPC chairman] is involved. It’s also about seeking the right partner for the future.”

Moving high onto that shopping list could be German publisher Bauer’s UK arm, given its strength in women’s and TV listings titles.

Changing with the times

Stephen Allan, chief executive of IPC’s media agency Mediacom TMB, says: “IPC has certainly changed and become a more dynamic company. Sly is a driven person, determined and tough.”

It may be Bailey who has been responsible for internal strategy changes, but it is Arculus’ name which has been linked with the talks with Telewest chief executive Adam Singer, also a personal friend.

And it was Arculus who, in December, talked of bringing IPC’s flotation forward by a year from its five-year post-buyout target, when its full-year results to September 30 showed a 3.1 per cent drop in operating profits to &£65.6m.

Whoever is directing operations at the top of IPC, it is Cinven in the short term which is ultimately pulling the strings.

Independent marketing consultant James Farnham says: “Generally, a flotation has proved to be one of the best exits for a venture capital company. But the main criterion is arguably beyond Cinven’s control – the performance of the sector.”

It is the market’s recent strong performance that is said to have prompted Cinven into looking for a quick trade sale. But one industry insider says: “Even if Cinven sells, it doesn’t mean the management want to sell their company.” A flotation would mean they not only benefit financially, but retain their jobs.

Farnham claims that venture capitalists tend at least to look for a 20 per cent year-on-year increase in profit before tax on their investment.

Now, two and a half years after the buyout, Cinven is reportedly asking &£1.5bn for IPC, although many believe Cinven paid over the odds in the first place. Observers think that Telewest pulled out because the price was pitched too high.

There has even been speculation that EMAP is a potential suitor, but Mays-Smith says: “It makes sense for someone who doesn’t have a platform in the UK to buy IPC.” Bailey also dismisses the idea of IPC being broken up following a sale. “It is hugely unlikely. The value of this business is the breadth and depth of the portfolio.”

Flotations are never without obstacles, as IPC has found to its cost with the foundered G&J deal.

National Magazines seizes G&J prize

National Magazine Company’s managing director Terry Mansfield must have had a wry smile on his face as he snatched Gruner & Jahr from under the noses of IPC Media in a deal that was negotiated over the weekend.

The fit is not obvious. Why enter the women’s weekly market, a stonghold of IPC, by buying women’s weekly title Best?

The company says the purchase strengthens its core markets in women’s interest, home and parenting titles and the male market. It also makes the point that content from G&J’s titles will be used to enhance its recently launched uk.women.com and that the magazines will potentially provide a larger online community.

Mansfield says: “The Hearst Corporation is a bigger business than people realise. We are always in a position to write a cheque.”

He refused to say how much the deal – to be completed on or before August 31 – cost, but indicated that it was over &£30m.

There could well be further acquisitions for the company that is now number three in the market behind IPC and EMAP.

But New PHD press director Laura James says: “It’s an interesting acquisition and the fit doesn’t appear to be a natural one with their portfolio. One could suppose that they have bought the titles to sell off the weekly element and Focus.

“The purchase will expand the company’s role in the middle-aged domestic market, by adding Prima to Good Housekeeping.”

But Mansfield says: “We don’t buy magazines to fold them and we aren’t a banker. We are a magazine and media company.

“I’m excited about going into the weekly business for the first time. It’s also the first time for the Hearst Corporation, which hasn’t been in the weekly magazine business before. “With Prima and Good Housekeeping, we have the Daily Mail and Daily Express of magazines.”

He says it is too early to say what plans NatMags has for G&J’s Vital, due to be launched in the autumn, but indicates that the company already has women’s monthly She, which appeals to the same age range.

“It would be unfair to comment on IPC. They are competitors in the magazine business, not enemies. If they want to sell me Country Life and Women’s Journal, I would be happy.”

MediaVest client services director Nigel Conway says: “It’s an incredibly cheap way for NatMags to expand its portfolio. It hasn’t succeeded in growing titles and this gives it a serious foothold in the market.”

G&J led the German invasion which created mayhem in the UK women’s magazine market during the mid-Eighties.

Its first UK title, Prima, was launched to widespread indifference in 1986.

Rivals sneered that its homely, down-to-earth approach would never catch on in a style-obsessed sector, but it quickly became the biggest-selling women’s monthly.

It was followed by the weekly Best and H Bauer’s Bella, which immediately made massive inroads into the circulation of IPC’s Woman and Women’s Own, the traditional market leaders.

The German titles’ bright, unpretentious mix of gossip and practical tips made the IPC stable look dated and stuffy – the sort of magazine your mother would read.

Between 1995 and 1992 Woman’s Own’s circulation dropped by 405,107 from 1,105,285 to 700,178, and the other titles suffered similar losses.

For a while it seemed as if G&J and Bauer had the magic formula in an overcrowded and fiercely competitive market.

Compared with UK publishers, the Germans could afford to look long term, because they didn’t have the City breathing down their necks. If they believed in a project, they had the cash and the confidence to stick with it.

But G&J’s formula lost its shine as IPC revamped its titles and poured millions into marketing.

To make matters worse, the company became embroiled in a costly price-cutting war with IPC, following G&J’s 1996 launch of celebrity gossip title Here! which was later merged with IPC’s Now.

New PHD press director Laura James says: “G&J did shake up the market with high circulation mainstream titles, but the problem was that they were easily copied.”

The rise and fall of Gruner & Jahr UK

ABC figures

<b>Gruner & Jahr <b>Latest (six months to Dec 1999) <b>Highest <b>First Prima 421,412 1,072,284 (Dec 1987) 993,018 (June 1987). Best 471,735 987,160 (June 1988) 987,160 (June 1988) Your Home 181,263 201,607 (Dec 1998) 170,046 (June 1998) Focus 67,607 90,414 (June 1997) 85,432 (Dec 1996) Prima Baby 52,505 (first ABC) – –

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