CBS Inc., continuing to sell off non-broadcasting businesses, said Monday that it plans to sell its 21-publication magazine division to a group of the unit's executives for $650 million in cash.
CBS considers the offer from CBS Magazines President Peter G. Diamandis and associates "a really good price for a . . . marginally profitable part of CBS' operations," said George F. Schweitzer, a CBS vice president. The purchase, approved by the company's board last Wednesday, will be made in a leveraged buyout financed by two merchant banking units of Prudential Insurance Co.
The magazine division publishes such titles as Woman's Day, Field & Stream, Road & Track and Modern Bride. The division, begun in 1971, last year posted $10.6 million in pretax operating income on revenue of $407.2 million.
Since Laurence A. Tisch became chief executive last September, CBS has sold its book publishing unit for $500 million and its music publishing division for $125 million. These businesses and the magazine unit, while profitable, have not produced nearly the return yielded by the CBS Broadcast Group, analysts noted.
In a statement, CBS cited its "commitment to . . . its core businesses" of broadcasting and recording and said the company remains interested in expanding both. Nonetheless, this latest sale announcement renewed speculation that CBS might also eventually sell off its records unit, which is the world's largest.
While CBS Records is currently highly profitable, "it's a volatile business, and that's not the kind Larry Tisch likes," said Edward Atorino, an analyst with Smith Barney, Harris Upham & Co. in New York. He added that the price for the magazine division, from CBS' standpoint, was "terrific."
CBS officials, including Tisch, have repeatedly denied intentions to sell the magazine unit. Spokesman Schweitzer said Monday that Diamandis' offer was "unsolicited." Tisch "felt obliged to take it to the board in the interests of the shareholders," Schweitzer said.
Among those who have approached CBS about the magazine division was Robert Maxwell, the British press baron who later launched an unsuccessful hostile takeover bid for Harcourt Brace Jovanovich.
Several publishing and advertising executives speculated that the magazine unit's new owners may try to sell off some of its titles to reduce the debt. A number of major magazine publishers have recently been on the prowl for acquisitions, they said, and sales might also make sense since several of the CBS unit's magazines appeal to similar audiences.
By eliminating some of the duplication of the line, "you could make it easier to sell packages of ads to advertisers, which is something they haven't done so successfully," said Michael Drexler, national media director of the Bozell, Jacobs, Kenyon & Eckhardt advertising agency in New York.
In an interview, Diamandis said the buyout group has made no decision on whether to sell some of the magazines. "But this is a new business, so we'll leave that possibility open."
He said the buyout group would probably include several dozen CBS Magazines executives, although the exact number has yet to be decided. In a leveraged buyout, an acquisition is paid off from the sale of assets or from the profits of the acquired company's operations.
Some analysts speculated that the magazine division's performance may improve as an independent company, noting that some have considered it a neglected part of CBS' business. "They may be willing to promote and spend to get things going, which CBS has not," said John Reidy, an analyst with Drexel Burnham Lambert in New York.
CBS Magazines became the focus of controversy in 1985, when the unit paid $363 million for 12 of Ziff-Davis Publishing Co.'s consumer magazines, including Modern Bride, Stereo Review and Car & Driver. Within months of the sale, CBS sued Ziff, charging that the company had fraudulently withheld details of the magazines' financial condition.
The suit was dismissed in December, 1985. Tisch was reported to have been among those who felt that CBS had paid too much for the properties.
Diamandis predicted that the magazine division's pretax operating profits would be up only slightly this year, but he defended the Ziff acquisition and blamed the division's slow growth on general conditions in the magazine business.
"If there has been any disappointment in earnings, it's because of a malaise in the industry," Diamandis said.
Sale of the division will pare 1,400 positions from the CBS payroll, which has fallen to 11,300 from 16,000 a year ago.
Adventure Travel* 160,000 American Photographer 253,148 Audio 151,458 Automobile Quarterly** 24,000 Backpacker 174,126 Boating 191,151 Car and Driver 912,006 Cycle 406,972 Cycle World 313,599 Field & Stream 2,004,608 Flying 330,608 Home Mechanix 1,204,771 Leisure Time Electronics** 53,000 Modern Bride 326,268 Popular Photography 850,058 Road & Track 711,657 Skiing 451,537 Skiing Trade News** 11,000 Stereo Review 552,869 Woman's Day 5,687,839 Yachting 135,216
CBS also publishes a series of crossword puzzle, word game and astrology books, with composite annual circulation of 38.7 million. Additionally publishes a series of specials and annuals, called "one-shots" in the industry.
* New and biannual; not ABC
** Not audited
Source: Audit Bureau of Circulations CBS MAGAZINES DIVISION
1986 1985 1984 Revenue (in millions) 407.2 407.1 331.2 Operating income (in millions) 10.6 4.6 19.0
1986 magazine revenue was 8.6% of CBS' total revenue;
1986 magazine operating income was 2.5% of CBS' total operating income.