Emap poised for $1bn bid in first US deal

EMAP, the publishing group behind magazines such as FHM, Elle and Smash Hits, is poised to make its first move into the United States with a deal worth more than $1bn.

Emap yesterday confirmed that it is in talks about making a recommended bid for The Petersen Companies, a Nasdaq-listed special-interest publisher whose magazine titles include Guns & Ammo, Hot Rod and Skin Diver. The acquisition would make Emap the world's leading magazine publishing group.

Shares in Petersen soared $6.75 to $30.25 on the news, valuing it at more than $800m. The company is also carrying $140m of long-term debt on its balance sheet.

Emap shares dropped 75p to 1050p on worries that the group was preparing a rights issue to help finance the acquisition. Analysts said the deal made strategic sense, although the price looked expensive.

Emap shares peaked at almost 1300p earlier this year, although they have since slipped back on worries that the economic slowdown would hit advertising revenues.

Shares in Petersen have risen steadily since it floated at a share price of $17.50 in October 1997, although the company is not yet profitable. In the year to December 1997, Petersen reported a net loss of $23.8m on revenues of $239.7m.

Apart from its 80 magazine titles, Petersen also produces television programmes and runs trade shows.

Kevin Hand, who took over as chief executive of Emap earlier this year, is keen to expand the company into overseas markets. He recently shook up the group's management structure in order to concentrate on international expansion.

Emap has been highly successful in the UK market, but competition concerns mean that the company has limited room to grow in its main consumer publishing interests.

Ownership limits have prevented Emap from expanding its radio interests, which include the Kiss FM dance station. Earlier this year the group was forced to sell its Red Dragon station in Cardiff when it bought Melody Radio from Hanson.

As a result, the group has been restricted to starting new titles such as Red, the women's magazine that was launched successfully earlier this year.

Emap has been exploring launching FHM, its highly successfully lad's magazine, in the US. Although several publishers have offered to publish the magazine on a franchise basis, Emap wants to retain editorial control. The company is also planning to launch Top Sante, its health title, in other markets.

Analysts said the worry was whether Emap's balance sheet could stretch to finance such a large deal. Mr Hand said recently that the company, which has debts of pounds 150m, could afford to pay pounds 600m for an acquisition. However, Emap's dependence on advertising revenues means it would be highly exposed if the economy slowed down.