Hefner in deal to buy back Playboy

LOS ANGELES — More than a half-century after launching Playboy from his South Side Chicago apartment, Hugh Hefner is buying back the bunny.

Hefner, 84, reached a deal to acquire the shares of Playboy Enterprises Inc. that he doesn’t already own for $6.15 each — an 18 percent premium over Friday’s closing price. That brings the value of the company to about $207 million.

“The brand resonates today as clearly as at any time
in its 57-year history,” Hefner said. “I believe this agreement will
give us the resources and flexibility to return Playboy to its unique
position and to further expand our business around the world.”

The transaction would free Hefner and Chief Executive Scott Flanders to pursue a turnaround strategy for the faded Playboy empire without being accountable to Wall Street investors.

“I know better than anyone the challenges we face in
the near term,” Flanders said. “Being private will enable us to take a
three- to five-year horizon on the transformation we’re trying to
implement, rather than be burdened by the quarterly pressures and
challenges inherent in being public.”

Playboy, a magazine that promised an escape from the
family-oriented conformity of the 1950s, roared to popularity in the
’60s. By the 1970s, the empire had expanded to nightclubs, films,
books, a modeling agency and a line of products.

But Playboy began to lose circulation to more
graphic publications, such as Hustler and Penthouse. By the ’90s, young
readers gravitated to Maxim and other rivals that managed to titillate
without being tainted as porn. Even Playboy’s video business has
struggled amid competition on television and the Internet.

The company has taken $54.7 million in restructuring and impairment charges over the last two years as it slimmed down. That contributed to combined net losses of $211.6 million for 2008 and 2009 and $33.8 million in the first nine months last year.

Revenue, meanwhile, slowed from $292.2 million in 2008 to $240.4 million in 2009. It was $160.2 million in the first nine months last year.

“It’s tough to be a single product competitor in a scaled global media landscape,” Flanders said.

He plans to pursue a brand strategy that includes
reviving the long-dormant Playboy Clubs and slapping the company’s
recognizable bunny silhouette — adorned with bow tie — on everything
from men’s underwear to energy drinks and slot machines.

The company’s global licensing business produced
more profit in 2010 than it did from Playboy magazine or its
entertainment group, which produces “The Girls Next Door,” a reality TV
series set in the Playboy Mansion.

“They’re better off selling Playboy socks in China than selling smut in America,” said Bill Asher, co-chairman and co-owner of adult films producer Vivid Entertainment, who also owns more than 1 million shares in Playboy.

Flanders said he would pursue cost-saving
partnerships for the company’s digital and television operations,
similar to one it struck with publisher American Media Inc., which handles non-editorial operations for Playboy. The deal helped stem the red ink for the magazine, which had been losing $1 million an issue when Flanders arrived at the company, he said.

On Sunday night, Playboy’s directors voted
unanimously to return the empire to its octogenarian founder. The
decision came six months after Hefner’s offer of $5.50 sparked a bidding war with FriendFinder Networks, owner of rival Penthouse and several social networking sites.

Hefner and private equity partner Rizvi Traverse Management subsequently sweetened the deal.

Under terms of the agreement, Icon Acquisition Holdings,
a partnership controlled by Hefner, will pay cash to acquire all
outstanding shares of Playboy. He currently owns nearly 70 percent of
the Class A voting shares and 28 percent of the Class B non-voting
stock.

Hefner has funding commitments from Rizvi Traverse Management and Jefferies & Co. The tender offer will be made by Jan. 21, with the deal expected to close near the end of March, according to officials.

Playboy shares rose 89 cents, or 17 percent, Monday to $6.09.

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