Source Interlink Pays a Big Premium for PRIMEDIA Unit

Includes: PRM, SORC
by: SA Eli Hoffmann

Source Interlink Companies, which provides marketing and merchandising services for entertainment products including DVDs, music CDs, magazines and books, said Monday it agreed to acquire PRIMEDIA Inc.'s Enthusiast Media segment for approximately $1.2 billion in cash -- nearly double PRIMEDIA's Friday closing market cap of $659 million. Private-equity firm KKR owns about 60% of PRIMEDIA. Enthusiast Media owns over 70 magazine titles and 90 Web sites, including Motor Trend magazine, Automobile magazine and Soap Opera Digest. The integrated company will combine Source Interlink's magazine distribution know how with PRIMEDIA's content, "creating a leading vertically integrated media, publishing, merchandising and distribution company," the companies said in a press release. Source Interlink estimates the combined company will generate $2.4 PRIMEDIA 14 05 2007 Chart Source Interlink 14 05 2007 Chartbillion in revenue. PRIMEDIA put Enthusiast Media up for sale in February; it says it will now be 'virtually debt free,' and will focus on its Consumer Source unit, which publishes free consumer guides like Apartment Guide. The deal is slated to close by the summer. Source Interlink shares are up 6.6% to $7.25 in pre-market trading; PRIMEDIA shares are up 20.5% to $3.00.

Sources: Press release, AP, MarketWatch, Wall Street Journal
Commentary: Will Magazine and DVD Distributor Interlink Be Acquired?Primedia, Internet Content Play?
Stocks/ETFs to watch: Source Interlink Companies Inc. (SORC), PRIMEDIA Inc. (NYSE:PRM). Competitors: McGraw-Hill Companies Inc. (MHP), Omnicom Group Inc. (NYSE:OMC)
Conference call transcript: PRIMEDIA Q1 2007 Earnings Call Transcript

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