[Infowarrior] - Bloomberg buys BusinessWeek

[Richard Forno]

Bloomberg Wins Bidding For BusinessWeek
Posted by: Tom Lowry on October 13

http://www.businessweek.com/innovate/FineOnMedia/archives/2009/10/bloomberg_wins.html

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.

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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