FriendFinder Networks, parent company of Penthouse Magazine, has offered $210 million to acquire Playboy Enterprises, Inc., topping a previous bid by Playboy founder Hugh Hefner to take the company private. Playboy's board of directors has stated it will give FriendFinder's proposal "appropriate consideration."

Competing Bids for Playboy

FriendFinder Networks, publisher of men’s magazine Penthouse, announced on Thursday, July 15, 2010, its offer of $210 million to purchase rival Playboy Enterprises. This bid follows an earlier proposal made by Playboy founder Hugh Hefner on Monday, July 12, to take the company private in a deal that valued the company at approximately $184 million to $185 million. Hefner's offer was for $5.50 per share in cash for the outstanding shares of Class A and Class B common stock.

FriendFinder's offer represents an equity value of over $210 million, which could increase based on due diligence, and works out to about $6.25 per share. FriendFinder also stated it might go higher after conducting its due diligence. Both bids would involve assuming approximately $105 million in existing debt.

Hugh Hefner, who owns nearly 70% of Playboy’s voting stock, has stated his intention not to sell his shares to a third party. On Tuesday, July 13, he reiterated this position in a Twitter post, stating, "Playboy isn’t in play." Hefner is working with Rizvi Traverse Management LLC, a private equity firm based in Birmingham, Michigan, to finance his offer to buy all of the Playboy stock he does not already own.

FriendFinder's Approach and Playboy's Response

Marc Bell, CEO of FriendFinder Networks, sent a letter to Playboy’s board of directors outlining his company's proposal. In this letter, Bell expressed a desire to partner with Hefner and keep him in charge of Playboy magazine. Bell stated, "We would propose an arrangement where we would partner with Mr. Hefner in our efforts to drive shareholder value." He also indicated that FriendFinder would agree to let Hefner retain editorial control of Playboy magazine and continue to reside in the Playboy Mansion, a property owned by the company in Los Angeles.

Bell hopes to dislodge Hefner's current partner, Rizvi Traverse Management LLC. In an interview, Bell said, "It really comes down to what Hefner wants. He can cash out or he can stay. We would love him to stay." FriendFinder's proposal also aims to provide liquidity for minority stockholders at a premium to market values, foster future growth, and reinvigorate the company and the Playboy brand.

Playboy Enterprises confirmed receipt of FriendFinder's proposal letter. In a statement, the company said its board of directors "will give it appropriate consideration."

Industry Context and Hefner's Control

The adult entertainment industry has seen increased competition, particularly online, which has impacted traditional print businesses like Playboy magazine. The magazine has experienced declining readership and advertising revenue. To counter this, Playboy has focused on licensing its brand and the iconic bunny ears for consumer products. Marc Bell believes FriendFinder can assist in building Playboy's online brand by directing traffic from FriendFinder's other websites.

Despite FriendFinder's higher offer, Hugh Hefner's significant ownership of Playboy's voting stock gives him final say on any potential sale. Hefner owns about 69.5% of Playboy's Class A common stock and 27.7% of its Class B super-voting shares. RBC Capital Markets analyst David Bank noted, "If he doesn’t want to sell, there’s no deal."

Hefner's motivation for taking the company private is not fully clear, though in a letter to Playboy's board, he expressed concerns about the editorial direction of the magazine.

Key Facts

  • FriendFinder Networks offered $210 million to acquire Playboy Enterprises, Inc.
  • Playboy founder Hugh Hefner previously offered to take the company private for approximately $184 million to $185 million.
  • FriendFinder's offer translates to about $6.25 per share, compared to Hefner's $5.50 per share.
  • Hugh Hefner owns nearly 70% of Playboy's voting stock and has stated he is not interested in selling his shares.
  • FriendFinder CEO Marc Bell proposed keeping Hefner in charge of Playboy magazine and allowing him to reside in the Playboy Mansion.
  • Playboy's board of directors will give FriendFinder's offer "appropriate consideration."