Meredith Corporation announced that it has entered into a binding agreement to acquire all outstanding shares of Time Inc. for $18.50 per share in an all-cash transaction valued at $2.8 billion. The transaction has been unanimously approved by the Boards of Directors of Meredith and Time Inc., and is expected to close during the first quarter of calendar 2018.

Meredith has secured a total of $3.55 billion – which includes a $350 million undrawn revolving credit facility – in fully committed debt financing from RBC Capital Markets, Credit Suisse, Barclays and Citigroup Global Markets Inc. Meredith has also secured $650 million in preferred equity commitment from Koch Equity Development (KED). Funds will be used to finance the transaction and refinance existing debt.

KED has deployed in excess of $8 billion of industry agnostic principal investments over the last five years. Its $650 million investment in Meredith follows more than $2 billion of passive, preferred equity investments supporting four similar strategic transactions involving publicly traded entities. 

KED will not have a seat on the Meredith Board and will have no influence on Meredith's editorial or managerial operations. KED's non-controlling, preferred equity investment underscores a strong belief in Meredith's strength as a business operator, its strategies, and its ability to unlock significant value from the Time Inc. acquisition. Rothschild, Inc. and Credit Suisse are serving as financial advisors to KED and Jones Day is serving as legal counsel.

"We are creating a premier media company serving nearly 200 million American consumers across industry-leading digital, television, print, video, mobile, and social platforms positioned for growth," said Meredith Corporation Chairman and CEO Stephen M. Lacy. "We are adding the rich content-creation capabilities of some of the media industry's strongest national brands to a powerful local television business that is generating record earnings, offering advertisers and marketers unparalleled reach to American adults. We are also creating a powerful digital media business with 170 million monthly unique visitors in the U.S. and over 10 billion annual video views, enhancing Meredith's leadership position in reaching Millennials."

The transaction will create a diversified media and marketing company with calendar 2016 combined revenues of $4.8 billion – including $2.7 billion of total advertising revenues with nearly $700 million of digital advertising revenues – and adjusted EBITDA of $800 million. Additionally, Meredith anticipates generating cost synergies of $400 million to $500 million in the first full two years of operation. 

"This is a transformative transaction for Meredith Corporation, and follows a fiscal 2017 in which we posted the highest revenues, profit and earnings per share in our 115-year history," said Meredith President and Chief Operating Officer Tom Harty.  "When you combine our strong local television business – which has grown operating profit 15 percent annually over the last five years – with the trusted, premium multiplatform content creation of Meredith and Time Inc., it creates a powerful media company serving consumers and advertisers alike. We look forward to completing the transaction; welcoming the Time Inc. employees to Meredith; delivering on our pledge to achieve identified synergies; and growing shareholder value."

Key Strategic and Financial Benefits of the Transaction:

• Creates unparalleled portfolio of national media brands with greater scale and efficiency – Combined, Meredith's brands will have a readership of 135 million and paid circulation of nearly 60 million, with leading positions in celebrity, food, lifestyle, news and sports, parenting, and home content creation, as well as enhanced positions in the beauty, fashion and luxury advertising categories.

• Continues the strong and growing contribution from local media – Meredith's portfolio of 17 high-performing television stations in 12 markets is a consistent generator of strong cash flow. Meredith's stations – which reach more than 11 percent of U.S. television households – are primarily Big 4 network affiliates located in fast-growing markets. In fiscal 2017, Meredith's broadcasting business delivered the best year in its 60-year history, generating record revenues and profit – including more than $60 million of political ad revenues – and an EBITDA margin of 40 percent. Looking ahead, Meredith anticipates another strong political advertising year in fiscal 2019.

• Accelerates Meredith's digital position by adding significant scale – Meredith will be transformed into a Top 10 digital media company with 170 million unique monthly visitors in the U.S., over 10 billion annual video views, and nearly $700 million in digital advertising revenues. It will operate the No. 1 premium digital network for American consumers with unmatched reach to Millennials. Additionally, Meredith will be a top-tier data player with a database of more than 250 million email addresses/device IDs, paired with leading advertising technology platforms and shopper marketing capabilities.

• Provides advertising and consumer revenue diversification and growth – Meredith will be well-positioned to benefit from fast-growing digital advertising platforms, including native, video, shopper marketing, programmatic and social. Also, Meredith expects to increase consumer revenue from diversified streams, including bundled circulation activities, brand licensing, ecommerce, events, video creation, content management, and marketing services.

• Enhances financial strength and flexibility – Meredith expects the transaction will be accretive to free cash flow in the first full year of operations. Meredith has demonstrated a strong track record of achieving cost synergies with prior acquisitions, and is confident in its ability to optimize the cost structure of the combined business. The increased scale and free cash flow – coupled with cost synergy achievement – positions Meredith to aggressively pay down debt and achieve a leverage ratio of approximately 2x by 2020, and take advantage of future acquisition opportunities in the media space.

• Increases Total Shareholder Return – Meredith remains committed to delivering top-third Total Shareholder Return. Meredith will continue to pay its current annual dividend of $2.08 per share, and expects ongoing annual dividend increases. Meredith has paid a dividend for 70 consecutive years and has increased it for 24 straight years.

"To summarize, we believe this acquisition represents a transformative and financially compelling growth opportunity for Meredith Corporation and will increase shareholder value over time," Lacy said. "We are acquiring an impressive portfolio of leading brands and a digital business of scale with tremendous growth potential, complemented by our growing television broadcasting business that produces strong cash flow, fueled by growing political advertising and retransmission revenues. And the company will be led by Meredith's executive management team with expertise in integrating acquisitions and operating multiplatform media businesses."