Today, I’m going to talk about the Time-Meredith deal and the investing benefits of owning takeover targets like Time, Inc. (TIME), which is up 9% in early Monday trading as of this writing. But before I do that, I have to admit Meredith Corp.’s (MDP) $2.8 billion buyout of Time makes me a bit sad.
My Time with Time
In the summer of 2002, in the wake of 9/11 and just before my senior year of college, I was an intern in Time Magazine’s Washington, D.C. bureau. It wasn’t your typical internship: I didn’t just make copies and fetch coffee for my superiors. They actually let me do things.
I covered Capitol Hill hearings on the creation of the Homeland Security Department, the rise of identity fraud (long before the recent explosion in cyber terrorism), and, most memorably, an investigation into whether or not Iraq had weapons of mass destruction, headed by a highly skeptical Senator Joe Biden. I interviewed State Department higher-ups and United Nations ambassadors, and even managed to earn a couple of reporting bylines for my efforts!
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Most thrilling of all, I got to sit in on the weekly editorial board meetings, which included future White House press secretary Jay Carney and future “Face the Nation” host John Dickerson. Listening to some of the most respected, influential print reporters debate the merits of the Iraq invasion and share theories on where Osama bin Laden was hiding was a transformative experience for a doe-eyed, 21-year-old aspiring journalist.
Since then, print journalism has died a slow, painful death. While Time Magazine remains one of the most respected weekly publications remaining (depending on your political leanings, I suppose), it doesn’t carry quite the same weight it once did. Its parent company, Time, Inc., was spun off from Time Warner (TWX) in June 2014, and has seen declining sales every year since. Which brings me to the Time-Meredith deal.
From a financial perspective, Time, Inc. was due for a buyout. In addition to the declining revenues, inconsistent profits and a cash-to-debt ratio of about 1-to-4, TIME stock has never gained much traction on Wall Street. It’s down more than 14% since coming public in mid-2014—and that includes an 85% run-up this month on rumors of the Meredith deal (see chart below).
But from a purely nostalgic point of view, there’s something depressing about Time Magazine (and Time, Inc.’s other magazine properties, which include Sports Illustrated, People and Fortune) being bought out by a smaller publisher with an inferior magazine portfolio. Meredith’s properties include Better Home & Gardens, Allrecipes and Shape. I’m sure those publications are quite useful for anyone who owns a home and garden, cooks or likes to stay in shape. But …. well, let’s just say they don’t exactly require the same level of journalistic devotion or deep-dive reporting as Time Magazine (or Sports Illustrated, for that matter).
Nostalgia aside, the Time-Meredith deal is the first bit of good news for TIME stock investors in years. If you were smart enough to buy TIME stock based on rumors of the deal, or clinging to TIME stock as a takeover target at some point, I salute you.
What to Do with Takeover Targets after the Buyout
What should you do with the stock now that it’s no longer a takeover target? For that, I’ll defer to Crista Huff, our growth and value stock expert.
Here’s what Crista wrote in September about takeover targets:
“You can sell your stock on the open market, any day between the announcement and the close of the merger transaction. You will receive the market price for the stock, which could be above or below the price of the buyout offer.
“Alternately, you can keep your stock, and wait for the acquisition to take place. (That waiting period could easily take six to 18 months, during which time you’ll likely watch your capital stagnate.)
“The risk in waiting for the completed merger is that the acquiring company might not receive anti-trust approval, in which case the merger would fail and the targeted company’s stock price would fall.”
Given the big gains after the Meredith buyout news, it probably won’t get much better for TIME stock than this. The best time to sell the stock is probably right about now—hopefully at a profit!
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