Supermarket magnate Ron Burkle lost his bid last year to buy into Knight Ridder Inc., the nation's second-biggest newspaper chain.
This year, Burkle and fellow local billionaire Eli Broad were turned back in their offer for Tribune Co., owner of the Los Angeles Times.
On Monday, Burkle scored on his third try to become a publishing czar when a company he controls agreed to pay $1.2 billion for 76 specialty magazines, related websites and other holdings. The acquisition includes such venerable titles as Motor Trend, Hot Rod and Surfer, all of which were founded in Southern California, as well as some more obscure macho hobbyist magazines including ATV Rider, Four Wheeler and Super Streetbike.
The deal left some analysts questioning whether Burkle's company overpaid. "We find it difficult to see where many opportunities exist" for the magazines and websites, said Donald Trott, a Jeffries & Co. analyst.
Under the deal, Florida-based Source Interlink Cos., one of the nation's largest distributors of magazines, DVDs and music CDs to retailers, will acquire the magazine unit of Primedia Inc. Burkle's investment firm, Yucaipa Cos., which orchestrated a host of grocery mergers and currently holds stakes in such companies as Wild Oats and Pathmark, owns about a third of Source Interlink, making it the largest shareholder.
Source's stock dropped nearly 15% to $5.79 on the news Monday. And analysts were told they would have to wait to learn how the magazine distributor would benefit by becoming the publisher of a wide array of periodicals.
Trott called the sale price "rather lofty" and questioned whether the borrowing costs would exceed the operating profit from Primedia's Enthusiast Media division, which includes 90 websites, more than 65 special events and 400 branded products.
Burkle and his Yucaipa group are entering publishing at a time when the industry is undergoing wrenching changes as readers increasingly turn to the Internet for information. The billionaire, who counts former President Clinton as his friend and sometimes house guest, recently raised eyebrows when he hired former Los Angeles Times Publisher Jeffrey M. Johnson, who was ousted after refusing to make job cutbacks demanded by his Tribune bosses in Chicago.
A Yucaipa spokesman declined to comment on the company's strategy. But Source Interlink Chairman Michael Duckworth called the acquisition "a first step to leverage what we have built by transforming Source into a fully integrated media company with both print and digital content." Duckworth is a Yucaipa partner.
One person close to the company discounted concerns about the market's initial reaction -- saying that investors would eventually "fully understand the deal and why it's important to take on these valuable properties."
Source Interlink is betting on one of the strongest business trends of recent times -- the increasing fragmentation of media to capture specialty audiences.
"For the last 25 to 30 years, the story in the media has been niching and fractionalizing, and these specialty books have been riding that trend really, really well," said David Abrahamson, a professor at the Medill School of Journalism at Northwestern University. "They target audiences with very specific information, which can produce an almost cult-like following, to the great delight of advertisers."
Source Interlink previously specialized in delivering magazines, not publishing them. The company serviced about 110,000 stores in all, including the Barnes & Noble chain. Some of the magazines it purchased rely heavily on home subscriptions but others depend on checkout stand purchases.
The Primedia magazines produced $524.8 million in revenue in fiscal 2006. Source Interlink said that the two ventures combined would produce $180 million in pretax cash flow.
New York-based Primedia faired better Monday, its stock rising 33 cents, or 13%, to $2.82.
Private equity giant Kohlberg Kravis Roberts & Co. began assembling the properties that would become Primedia in the late 1980s. But in recent years, it has been divesting, including the sale last month of Channel One, its education television business.
If Monday's deal is completed this summer, as predicted, the media company will be down to its final division, which holds free consumer publications such as Apartment Guide, Auto Guide and New Home Guide and their related websites.
Primedia Chief Executive Dean Nelson said the company would "emerge from this auction virtually debt free and completely focused on our Consumer Source business."
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A company controlled by Ron Burkle's investment firm has agreed to buy a magazine group that publishes more than 70 titles, including Automobile, Motor Trend and Soap Opera Digest. The following 13 magazines are based in Los Angeles, with an additional 30, including Surfer, Snowboarder and Lowrider, published in other Southern California cities:
4 Wheel & Off Road
Source: Primedia website