Time Inc, the magazine company that is home to People, Sports Illustrated and Time, saw its shares fall lower on the New York Stock Exchange on Monday in its first trading session following a spin-off from its parent, Time Warner Inc. Led by Chief Executive Joe Ripp, Time Inc will operate on its own, no longer buffered by its lucrative cousins at Time Warner Inc such as pay-TV channel HBO or movie studio Warner Bros.
The move to break off comes as magazines are beset by declining circulation and advertising revenue as consumers shift to reading on smartphones and tablets. "There is no doubt we face strong headwinds in this business," Ripp said in a memo to employees, adding that Time Inc has "the power, the intelligence, the resources and the drive to succeed no matter what headwinds we may face."
Shares fell 80 cents, or 3.4 percent, to $22.68. As part of the spin-off, Time Warner shareholders received one share of Time Inc stock for every eight shares of Time Warner stock. Based on 110 million shares outstanding, Time Inc had a market value of roughly $2.5 billion. The magazine unit, which publishes more than 90 magazines, including the business magazine Fortune, and operates 45 websites, has been slashing jobs over the years.
That trend is expected to continue under Ripp as investors scrutinise costs. The company, which slashed 600 jobs in 2013, now has about 7,800 employees. Time Inc's revenue fell 9 percent to $3.35 billion between 2011 and 2013, while operating profit dropped 40 percent. Ripp said in an interview on CNBC on Monday that Time Inc has been underinvested in for years and that the company now has the opportunity to take its cash flows, put them back into its businesses and make its brands "so much more than print." The company has also taken on $1.4 billion in debt, partly to help fund a one-time dividend to Time Warner shareholders.
Several media companies, including Wall Street Journal publisher and Fox News owner News Corp, have split in recent years to separate their print properties from faster-growing TV and cable businesses. Tribune Co also plans to cleave off its newspaper properties, including the Los Angeles Times and the Chicago Tribune, from its TV stations this year. Wells Fargo started its coverage of Time Inc with an "outperform" rating and $27-$29 valuation range. "We think an attractive valuation and dividend yield along with untapped upside potential in digital and cost cuts offer a compelling risk/reward for long-term investors," Wells Fargo analysts said.
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