READER’S DIGEST Association, the venerable staple of doctors’ waiting rooms and middle-class bedside tables, yesterday announced plans for voluntary bankruptcy as it became the latest victim of the advertising recession.
Equity investors led by Ripplewood Holdings, who announced the $2.4 billion (€1.6 billion) acquisition in November 2006, will lose their entire $600 million investment.
The prepackaged Chapter 11 filing, agreed with senior lenders but contingent on agreement with other lenders, marks the latest media industry deal struck at the peak of the credit-fuelled buyout market to head towards the bankruptcy courts.
Reader's Digest, launched by a husband and wife in a backroom in New York in 1921, began as a mail-order collection of condensed articles from other magazines and evolved into a direct-mail pioneer and one of the world's largest publishers.
Nine of its 94 magazines have a circulation of more than one million in the US alone, and its titles claim a combined global readership of 130 million people in 78 countries. However, advertising revenue from the flagship magazine fell 18.4 per cent last year and is down another 7.2 per cent in the first six months of this year, according to the US Publishers’ Information Bureau.
“The deal was done at the height of the frothy investment banking model and the company was saddled with $2.2 billion worth of debt,” said Reader’s Digest Association chief financial officer Tom Williams.
Group revenues are down just 2 per cent this year, said chief executive Mary Berner.
However, as cash flows came in below the Ripplewood-led buyout group’s expectations, it found itself struggling to make a $27 million interest payment, due yesterday.
Ms Berner said the restructuring would not affect its operations or suppliers.
The Chapter 11 filing will apply only to the company’s US businesses. Its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be affected. – (Copyright The Financial Times Limited 2009)
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