Report: Forbes restructured to satisfy lenders





Fortune

magazine, citing confidential documents that had been leaked to its staff,

recently reported

that Forbes Media “has been under more financial strain than previously believed.” Forbes Media’s

Forbes

magazine competes with

Fortune.

The

Fortune

report said:

Forbes Media violated covenants on a revolving credit line that it took out in 2006, according to a letter sent to the company by J.P. Morgan. The loan, which was part of a series of transactions that allowed the Forbes family to cash out more than $100 million from the company, is due next July.

According to

Fortune,

Forbes hired a turnaround firm to develop an emergency plan. J.P. Morgan and six other lenders agreed to amend the loan in August 2010, but only if one of three conditions were met: selling its online financial dictionary, Investopedia; replacing Steve Forbes as CEO; and meeting financial targets. Forbes Media met all three conditions,

Fortune

noted. Investopedia was sold for $39.6 million, Steve Forbes stepped down in November 2010, and the company met its targets.

The

Fortune

report said the problems stemmed from the 2006 deal in which Forbes Media sold 45% of itself to Elevation Partners, a private equity firm, for a price that was less than had been believed. The article said the deal was “a windfall for the family, which took $107.4 million, about a third of the profits, for itself.” Elevation, which based its investment “on rosy 2006 projections that looked downright absurd by 2008,” believed it would make a lot of money on the deal.

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Fortune

called the Elevation deal “a failure” because it burdened Forbes Media with so much debt that the company had to cut costs aggressively.

Five years later Forbes Media’s earnings power has declined precipitously, and Elevation is nowhere near the return on investment it had predicted. The Forbes family was able to take a lot of money off the table.

According to Dow Jones’

All Things Digital website,

Steve Forbes responded to the

Fortune

report in a statement that said:


Fortune

was aware that this was highly confidential, private information and of no value to release to the public. Though the intention is to harm our business, it will not adversely impact Forbes because it highlights a very difficult time in the past when all the media industry was going through unprecedented upheaval.


Jim Romenesko’s media blog noted

that in 2006, Steve Forbes told the

New York Times

that the Elevation deal “was a way to expand the empire.” (Sources:

Fortune,

July 28, 2011; All Things Digital, July 28, 2011; Romenesko, July 28, 2011.)

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