The Forbes family was devas tated by yesterday’s disclosures in rival Fortune about just how poorly Forbes Media LLC performed in recent years after it sold a minority chunk to Elevation Partners in 2006 and then was forced to bring in a restructuring adviser after it went into technical default on its loans.
The restructuring is what forced Steve Forbes to relinquish the CEO job and Tim Forbes to hand off the chief operating officer title. An outside CEO, Mike Perlis, was brought on board.
Fortune’s article on Forbes Media also reveals that the family put $107.4 million into its own pocket in 2006, after selling a 45 percent minority stake to Elevation, the investment firm controlled by Silicon Valley entrepreneur Roger McNamee and U2 frontman Bono.
It also revealed that the sale price was $237.2 million, according to Fortune, which cites documents that originated with the banker JPMorgan Chase. The price does not include a $75 million line of credit.
In addition to the $107.4 million the family put into its own pockets, $101.8 million went to pay down debt, another $38.9 million went to pay down warrants while $41.4 million in cash stayed on the balance sheet and $22.7 million went to “expenses and fees.”
Forbes Media had an operating loss of $19.7 million in 2009 but faced with a mandate from restructuring experts at Alvarez & Marsal Capital, which was brought in by the board — including Elevation, and the family — had improved to an operating profit of $2.7 million last year.
But it came at a steep cost: the sale of online property Investopedia for $39.6 million, Steve Forbes stepping down as chairman and the axing of 25 percent of its editorial staff in one of the more brutal downsizings in publishing.
Forbes had its first inkling that the Fortune article was in progress late last week and has been searching to find how such detailed financial information could have leaked out.
The story was posted online yesterday, just as the Forbes board was meeting.
“They’ve been blown out of the water by this,” said one insider, of the Forbes family. Aside from the detailed financial information that had never before been revealed, the article also chronicled the company’s well-publicized selloffs of prized assets, such as its sprawling ranch in Colorado, bought by a Forbes 400 billionaire Louis Bacon, a Fiji island sold to Red Bull founder Dietrich Mateschitz, a palace in Tangiers, its corporate 727 emblazoned with the “Capitalist Tool” slogan and the dry docking of its yacht, The Highlander, which was formerly owned by Steve’s dad, Malcolm.
Fortune also says that JPMorgan and six other lenders agreed to amend the loan to the company in 2010.
Steve Forbes unleashed a blistering memo to staffers in which he said the Fortune story was published “with the clear intention of disrupting the business of its most formidable competitor.”
A statement released later in the day by spokeswoman Monie Begley said, “Forbes Media is profitable and in full compliance with all bank covenants.”
She added: “Steve Forbes remains editor-in-chief and chairman of Forbes Media. Tim Forbes is chairman of Forbes Digital. The Forbes family remains the controlling shareholder of Forbes Media.”
Diller dilly
Eyebrows were raised somewhat when Barry Diller in his conference call with analysts following IAC/InterActiveCorp’s quarterly results said he was prepared to invest $50 million in the Newsweek/Daily Beast venture that is controlled jointly by IAC and the family of the late Sidney Harman.
When Newsweek was on its own, Harman had said he was prepared to invest up to $40 million in the weekly magazine. So on the surface, it would seem that since the joint venture merged The Daily Beast with Newsweek, the funding commitment for the combined venture has increased by $10 million.
But has the timeline for black ink gotten a little shorter? Diller in the same conference call suggested Newsweek would be profitable in a year and a half.
Newsweek Daily Beast Editor-In-Chief Tina Brown, in a widely publicized talk before the Society of Professional Journalists/Deadline Club Awards dinner earlier this year, said that Newsweek would turn a profit in “two to three years.”
A spokesman for IAC yesterday backtracked a bit and insisted the 18-month profitability target is a good thing. “We’re not giving it a tighter deadline. In general, it is just a more positive outlook on the business.”
Media Industry Newsletter says that year to date through the July 25 issue, the Newsweek ad page tally is lagging a year ago by 24 percent, with only 378 ad pages. But a Newsweek spokesman insisted that much of that falloff happened before the company’s March redesign.
He said prior to the redesign, the magazine was only averaging 9.9 ad pages. Post redesign, he insisted it has been averaging 18.6 ad pages.