Emap's $1.2bn US deal stirs investor fears

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The Independent Online
SHARES IN Emap lost almost 8 per cent of their value yesterday as the magazine publishing group launched a pounds 359m rights issue to help fund its $1.2bn (pounds 730m) acquisition of Petersen, the US magazine publisher.

The stock fall came a day after Emap admitted that it was in talks with Petersen, a special-interests magazine group whose titles include Teen, Hot Rod and Guns & Ammo.

Emap shares dropped 80p to 970p as investors took fright at the price of the deal and the rights issue, under which shareholders will be able to buy one new share at 875p for every five shares they own.

Kevin Hand, Emap chief executive, defended the company's decision to tap its shareholders for cash. "We wanted to give our other businesses sufficient headroom for expansion going forward," he said.

Mr Hand said Petersen was a perfect fit for Emap. The company, which has headquarters in New York and Los Angeles, publishes a large range of special-interest magazines and has also started to run television and radio shows and Internet websites.

Mr Hand said Petersen provided Emap with a great opportunity to launch some its popular journal titles in the US. The company has been looking for ways to start publishing FHM, its hugely successful men's magazine, for a US audience.

"Petersen have a structure and a network in place," he said. "They also have a database of 17 million males aged between 18 and 35, which is the market we want to reach."

Emap may also launch some of its other UK titles, such as Smash Hits or Just Seventeen, in the US.

It is not planning to bring any of Petersen's magazines to the UK, although Mr Hand said the acquisition would bring valuable skills into Emap.

Emap first tried to buy the company three years ago when it was put up for sale by Ron Petersen, its founder, but was outbid by the current management team, which tabled a $500m offer.

All the existing management are staying on board. Jim Dunning, Petersen's chairman and chief executive, will be joining Emap's board.

Analysts were concerned by the price given the lack of obvious synergies between the two companies. "It's a good strategic fit, but it looks very pricey," one specialist said. "Does it make sense just when advertising spending is slowing down?"

In the nine months to September, Petersen reported earnings before interest, tax, depreciation and amortisation of $59.4m on revenues of $229m.