Playboy’s fate in Hugh Hefner’s hands
Break out the club keys and martini shakers: Playboy founder Hugh Hefner is alive and well, still swinging and dealing.
Four months after his surprising announcement that he wanted to buy back the company to revive the fortunes of his iconic creation, Playboy’s fate remains squarely in the 84-year-old’s hands.
Despite protracted deliberations by the Playboy Enterprises Inc. board, Hefner’s $123-million bid to buy the outstanding shares of the company is still on the table. And, even though longtime rival Penthouse has made a larger offer, Hefner’s bid probably will trump any other because he controls 70% of voting stock.
“There’s one buyer and that’s it, and it’s Hef,” said David Bank, an analyst at RBC Capital Markets. “I don’t think anyone else can buy it because I don’t think Hef is a seller.”
Hefner’s proposal dovetails with the company’s move toward a retro-inspired licensing strategy that includes everything from the revival of long-dormant Playboy Clubs to the aggressive, global marketing of the apparently ageless rabbit-head logo.
Although magazine readership, revenues and the company’s stock price have declined in recent years, Hefner’s plan may have legs. Since 2007, licensing has been Playboy’s most profitable business, Playboy spokeswoman Martha Lindeman said.
“It’s the right business decision,” Bank said. “Maybe Hef sees value in an asset that the public shareholders don’t.”
As an extension of the licensing concept, Playboy Clubs are coming to London, Macao and Cancun, Mexico, where casino partners will pay a base fee or a share of revenues for the name, the image and the rights to trot out an assortment of corseted and cotton-tailed women as cocktail servers and dealers.
“A Playboy Club without bunnies is like a martini without an olive,” said Michael Silberling, managing director of London Clubs International, a subsidiary of Harrah’s Entertainment that is planning to open a Playboy Club in the exclusive Mayfair area of London by the second quarter of 2011.
The original London Playboy Club closed under a cloud in 1981 after its gaming licenses were revoked. The new club owners are spending millions to renovate and rebrand the company’s existing Mayfair casino, located a stone’s throw from its namesake forerunner.
The private club plans to sell memberships for about $2,000 a year and expects no shortage of takers, Silberling said.
“This is going to be a very high-end, exclusive club,” he said. “We expect a number of interesting members from media, entertainment and sports, and we think this is rapidly going to be a hotspot in London.”
The first of the new generation Playboy Clubs opened in 2006 at the Palms Casino Resort in Las Vegas. Open to the public, the alternative to the main-floor casino has not proved to be a magnet for tuxedoed high rollers, but owner George Maloof said he was pleased with the peripheral benefits of the partnership.
“It’s the brand,” said Maloof, whose family also owns the NBA’s Sacramento Kings. “The sexiness of it, the bunnies, the intrigue that people have with it. It just made sense and it worked.”
Maloof said the hardest part had been developing a team of 29 bunnies to staff the club seven nights a week.
“It’s a very unique position,” he said. “It’s about a four-month training process before they can go up and deal in the Playboy Club. It’s a little more challenging to find the right look and train the right person, but we’ve done it.”
Launched in Chicago in 1960, the original Playboy Club on East Walton Street closed in 1986.
The original Playboy Mansion was vacated by Hefner in 1975 when he moved to Los Angeles, and there have been recent rumblings that the corporate offices may eventually follow suit. The company is looking to sublease space after downsizing to about 245 Chicago-based employees, but executives say a westward migration is not imminent.
“We have no plans to close this office,” Lindeman said.
Everything at Playboy has been up for grabs since July 8, when Hefner made his bid to take the company private. He owns 69.5% of the Class A voting stock and 27.7% of the Class B common shares, and offered $5.50 a share for the outstanding stock he didn’t already own — a $122.5-million bid that valued the company at about $185 million.
In August, the board formed a special two-person committee — consisting of Kai-Shing Tao and Sol Rosenthal — to evaluate Hefner’s offer.
Penthouse’s owners continue to pursue Playboy. They made a bid of $210 million days after Hefner’s.
“It’s more money, at the end of the day,” said Marc Bell, chief executive of FriendFinder Networks Inc., the Florida company that owns the Penthouse nameplate and a heavily trafficked, international melange of social networking and adult-oriented websites. “It’s about maximizing shareholder value, not just for the majority shareholder but for all shareholders.”
Still mourning the loss of its founder and former owner, Bob Guccione, who died last month at 79, Penthouse has very different plans for Playboy. With Penthouse’s circulation down to about 178,000 copies a month, Bell sees the future of both publications online.
“We think there’s a lot more they can be focusing on digitally, and that’s what we bring to the table,” Bell said.
If Hefner’s bid prevails as expected, readers will see page creases across photos of women for many years to come, RBC analyst Bank said.
“The job of Playboy magazine is to be the flagship for the licensing brand of Playboy,” Bank said. “Another owner might, but I don’t think Hef is going to accelerate the transition to digital.”