The French owner of the flashy Elle fashion magazine agreed Wednesday to pay $712 million to buy the company that publishes Woman's Day, Car & Driver and American Photographer.
Paris-based Hachette would get the magazines owned by Diamandis Communications, a New York-based firm formed last year by a management-led buyout of CBS' magazine division. Hachette said the deal would make it the world's largest producer of magazines.
"We're No. 1 in France and we're trying to establish ourselves in the biggest market in the world," said Didier Guerin, president of Hachette Publications, the New York-based U.S. subsidiary of the Hachette Group. "It's the American dream."
"We're looking at the most attractive market in the world," he said, "which is why European companies--and other foreign companies--are interested."
Just last week, Hachette, a firm with interests in television, radio, and book publishing--announced that it had agreed to spend about $450 million to buy Grolier Inc., a Danbury, Conn., firm which publishes Encyclopedia Americana, other encyclopedias and educational materials.
Wednesday's deal, which would reward Diamandis owners handsomely, includes Road & Track, Audio, Stereo Review, Popular Photography, Cycle, Cycle World, Flying and Boating magazines as well as a unit of the firm that publishes crossword and astrology magazines.
Largest Media Market
The Diamandis purchase would also be the latest on a rapidly growing list of U.S. publishing companies acquired by foreign companies.
A West German company recently bought Doubleday, the book publishing company. Also, British companies recently acquired the book publishing operations of the New American Library and E. P. Dutton, and Harcourt Brace Jovanovich was recently the takeover target of another British firm.
"A lot of foreign companies are looking at the U.S. because it's the largest media market in the world," said Jeffrey Russell, an analyst at Drexel Burnham Lambert.
Foreign interest in publishing houses is growing because the industry produces fairly consistent earnings and because there are governmental obstacles to obtaining television stations, according to James Goss, an analyst at Duff & Phelps.
"The media business is quite a good business to be in and many foreigners have had an interest," said Goss. "But publishing is the only way to do it without being monitored or regulated. This gives them (Hachette) a foothold in the U.S."
The Grolier and Diamandis purchases would also represent the latest major U.S. purchases by French firms. ITT telecommunications division, General Electric's consumer electronics business, Texas International oil and gas operations, and Burlington Industries glass fabrics operations have all been purchased by French firms.
The cash acquisition--the deal is to be completed June 1--would bolster Hachette's presence in the United States.
The company launched an American version of its French fashion magazine Elle in 1985, a joint venture with the Australian-born Rupert Murdoch. Hachette and Murdoch Magazines also publish Premiere, a movie magazine.
Hachette, in a statement, said the deal would make its owners the world's largest publishers. Hachette's U.S. subsidiary is owned by Publications Filipacchi, a magazine company that owns 35% of the Hachette Group holding company. In turn, Hachette owns 85% of Filipacchi.
Management to Remain
If the 1987 revenues of Diamandis and the Hachette-Filipacchi group were combined, sales would total $1.9 billion, according to Guerin. Time Inc., the world leader in 1987, had $1.6 billion in 1986, said Guerin, the president of the U.S. Hachette subsidiary.
Guerin said Hachette would not replace management at Diamandis.
"It's a very good deal for three reasons," he said. "We had an opportunity to acquire a very good company, with good management and good products. Magazines are different because there are many buyers and very few sellers."
The $712-million price tag and the payoff for Diamandis investors caught the attention of Wall Street. Six months ago, about 50 Diamandis executives bought the company along with two subsidiaries of Prudential Insurance from CBS for $650 million. Since then, Diamandis has agreed to sell the firm, its magazines and other assets for a total of about $1 billion. That resulted in a profit of $303 million for Prudential and the Diamandis executives.
However, Guerin said the price was right.
"Magazine acquisitions are not cheap and we were prepared for that," he said.
Considering the decline in the value of the dollar, the price Hachette paid should not be very surprising because many foreign currencies are now worth more in the United States, said John G. Nelson, an analyst at Brown Bros. Harriman.
THE FRENCH BUY AMERICAN
Major French purchases in the U.S. since 1984; dollar figures in millions.
Acquirer U.S. Target Value Cie Generale ITT $2,400 D'Electricite Telecommun. Amer Air Big Three 1,058 Liquide Industries Thomson GE consumer 800 electronics unit Hachette Diamandis 712 (pending) Communications Yves Saint Charles 631 Laurent of the Ritz Total Minatome CSX Oil & Gas 612 (pending) Hachette Grolier 450 (pending) Saint-Gobain CertainTeed 387 (pending) Porcher Burlington 128 Textile glass fabrics unit Minatome Texas International 120 oil and gas unit Casino USA Smart & Final 75 Iris Corp.
Source: IDD Information Systems