November 28, 2017 / 8:27 PM / 20 days ago

Breakingviews - Slim chance of Kochs taking over Meredith media

By Jennifer Saba

FILE PHOTO -- Businessman David Koch arrives at the Metropolitan Museum of Art Costume Institute Gala 2015 celebrating the opening of "China: Through the Looking Glass," in Manhattan, New York May 4, 2015. REUTERS/Lucas Jackson/File Photo - TM3EC810X4101

NEW YORK (Reuters Breakingviews) - Despite some media pundits’ suspicions to the contrary, David and Charles Koch may be cooking up nothing more than a decent investment in publisher Meredith. Through Koch Industries’ private-equity arm, the Republican-leaning activist U.S. billionaires are sinking $650 million into Meredith to help it buy Time Inc for $2.8 billion including debt. The Kochs get preferred shares, but no votes or board seats. Like Carlos Slim’s loan to the New York Times, the potential returns look more financial than political.

The family behind the sprawling Koch Industries, which makes everything from Brawny paper towels to oil pipelines, is known for donating hundreds of millions of dollars to mostly conservative causes. The brothers once flirted with buying the publisher of the Los Angeles Times and the Chicago Tribune. Gaining access to iconic American magazines like Fortune, Time and People could, in theory, help the Kochs push their agenda further.

Delve into the merger documents, though, and it doesn’t look as if the main goal is to wield influence at Meredith. Koch Equity Development, as the unit providing the cash is called, is getting a new class of shares with no votes. The payoff is the initial 8.5 percent annual dividend – which later rises and compares favorably with the 3.4 percent dividend yield on common stock.

It’s true that KED’s package includes warrants and options to purchase common shares and, if Meredith pays preferred dividends in extra shares rather than cash, KED can send someone to observe board meetings. Barring a meltdown of the business, though, the Meredith family will remain firmly in control thanks to supervoting stock.

Mexican telecom tycoon Slim inspired similar fear at the New York Times when, during the worst of the financial crisis a decade ago, he loaned the newspaper operator $250 million at a 14 percent interest rate. The Times repaid the debt. The loan came with warrants and Slim now holds about a 17 percent stake in the media company. But there’s no sign he has much say. The Ochs-Sulzberger family has unassailable control of the board.

The Koch brothers may, of course, see a different endgame. For now, though, the chances look slim they will take over Meredith’s titles.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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