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Friday, March 24, 2006

Valuing Penton 

Mea culpa. Mea maxima culpa.

The other day, in reporting on Penton Media Inc.'s 2005 results, I jotted down a few ideas on the valuation of Penton's common stock, of which I own some shares.

I immediately received a few chiding emails from readers of this blog with more stock market skills than I. And I've finally read all the fine print in the annual report--something I should have done prior to:

a) opening my big mouth
b) continuing to hold shares in Penton (mostly purchased before the creation of the preferred shares)

As I said before, I don't have enough invested to matter much, but that's no excuse. In my lazy noodling, I've become the kind of reporter that CJR's Daily Audit routinely calls to the mat.

And because I've come off as something of an inadvertent stock shill for Penton, regardless of my conflict-of-interest disclosures, I will continue to hold my shares, and let the chips fall where they may, at least until the end of this year. That should serve as some form of penance.

Here's a key quote from Penton's annual report:

If the Company had been sold on December 31, 2005, the outstanding loan and security balance of $10.2 million would be required to be paid, the bondholders would have been entitled to receive $315.9 million and the preferred stockholders, including the Series M Preferred, would have been entitled to receive $166.7 million before the common stockholders would have received any amounts for their common shares. In addition, the Series M Preferred holders would receive 8% of all amounts the common stockholder would receive.

Therefore, if you assume the multiples I assumed in my original post (though 11x EBITDA was considered too rich by at least one of my email correspondents), here's how Penton values as of December 31, 2005:

Value at 11x: $449.55 million
Less Debt: $326.1 million
Less Preferred: $166.7 million

Total left for common shareholders: -$43.25 million, or a per share value of about -$1.25.

And because the preferred shareholders' dividends only rise with time, it seems as though it will take one of two scenarios to bring the common shareholders' "real" per-share value to the positive side:

a) An extraordinary increase in EBITDA prior to a sale, or
b) The threat of a shareholder lawsuit in the event of a sale of the company, with the board and Penton executives deciding to take a more palatable return on their investment, and leaving at least something for the common shareholders.

Neither scenario is likely.

(There's a third scenario possible: Penton could be merged with an existing b2b media company, with some provision for common shareholders either at the moment of the merger, or down the road. But again, I'm just noodling and engaging in wishful thinking.)

There's nothing hidden from view in Penton's disclosures throughout the annual report, and the company clearly notes that its board is controlled by the Series C preferred shareholders, and that the company itself is managed by the Series M shareholders, and that each takes precedence over 'common' shareholders like me. There's an obvious, and noted, conflict: the board is supposed to serve as fiduciaries for common shareholders, but as preferred shareholders, their self-interest doesn't favor the common shareholder.

I continue to like Penton as a company, and to root for its management and employees. I don't think there was anything underhanded about the sale of the preferred shares--that event probably saved the company from liquidation. And even the Series M shares make sense, since they're intended to reward executives and employees for their hard work in turning the company around.

I'll report on Penton's operations in the future. But I'll abandon any further attempts at valuation, and try to stay focused on things I know a bit more about.

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Thursday, March 23, 2006

Acquisition News 

Retail Systems Alert Group, a company run by my good friend Kevin Condon, has acquired Helmer's Publishing's Supply Chain Group.

The addition of two magazines, related buyer's guides, some e-products and an event will surely continue to fuel the growth of Kevin's fine company.

Disclosure: We helped Retail Systems launch ERI Journal last year.

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Congrats, Neal Winners 

My sincerest congratulations to all of the Jesse H. Neal Award winners, announced today.

Farm Journal took home the Grand Neal for a series of articles called "Asian Soybean Rust Takes Root in the U.S."

Special shoutout to Rex Hammock and Shannon McRae, who won a Neal for Best Department in Hammock Publishing's MyBusiness Magazine. Rex and his fine crew continue to redefine custom publishing to the highest standards of editorial and publishing excellence.

Local shoutout to Hanley-Wood, whose Builder magazine took home a Best Single Issue Neal.

And another local shoutout to PostNewsweek Tech Media, which captured two Neals--for Best News Coverage in Government Computer News and Best Single Issue Newspaper/News Tabloid for Washington Technology.

A final shoutout to Folio: columnist and blogfriend Jeff Klein, whose 101communications picked up a Neal for Best Start-up Publication for its Redmond Channel Partner.

I'll leave it to Paul Conley to comment on the website winners: Porkmag.com, Aviation Week & Space Technology's Aviation Week Intelligence Network and CIO.com, but I would again ask the Neal committee to consider expanding its recognition of electronic work to include features, departments and series written specifically for electronic distribution. It's about time, don't you think?

UPDATE: Paul's post on the Neals can be found here. He's also added a comment to this post, an excerpt of which I reproduce here:

Part of me would like to see more new-media catergories. But part of me would prefer to see only medium-neutral categories, i.e., best writing, best reporting, best design, best news series, etc.

And at the same time I really worry that the ABM judges just don't get new media.

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Penton's 2005 Results 

UPDATE: Please see my related post on Valuing Penton, which comes to a very different conclusion than my speculation in this post.

Penton Media, Inc. (PTON) released its 2005 annual report, and while the topline results are somewhat mixed, I think there's continuing good news from the Cleveland-based b2b media company. (Disclosure: long-time readers of this blog know that I own some Penton stock, and that I've lost money on that stock, but that I continue to hold the stock so that I can make disclosure statements like this).

Overall revenues for the year were down 1%, to $192.8 million, but net loss was down to just $8.4 million, from last year's $67.2 million, and adjusted EBITDA climbed 21.8% to $40.8 million.

The revenue decline came primarily from print publishing, which dropped to $134.2 million from $141.4 million the prior year. But events revenue was up 6.3%, to $40.2 million, and e-media revenues were up 17.9%, to $18.4 million.

I think this latter number is particularly impressive, and probably makes Penton one of the few b2b portfolio companies to register e-media revenues of this size (by comparison, Advanstar delivered $3.6 million in e-media revenues in 2005). According to the company, it now operates 47 "core" sites, and increased its unique visits 18% to 43.2 million. Online advertising revenues grew 36%, search revenues ballooned 78% and webcast revenues increased 19% in 2005. And e-media revenues account for nearly 10% of total revenues.

On the events front, the company launched 57 conferences and roadshows in 2005, and increased conference attendance 45% over 2004.

And its custom publishing effort seems to be paying off, with revenues in that area up 29%.

The big overhang, of course, remains the company's debt, which was reduced about $10.5 million over the year, but still stands at a whopping $323 million, with annual debt service at $39.5 million for the year.

However, there's still--to my mind--a lot of value left in Penton. I really have no clue how the various common and preferred stock levels work, though I operate under the assumption that common shareholders will get the short end of the stick at all times. That said, here's my quick calculation of Penton's value, assuming all shares are common shares:

Penton's stock price was 67 cents as of yesterday, with a market cap of $23.11 million.

Penton's 'market value,' based on its adjusted EBITDA and a relatively conservative 11x multiple (given the multiples of other transactions of this size), is $449.55 million.

Subtracting the debt leaves a value of $126.5 million. So the stock market is undervaluing Penton by a little over $100 million, given current revenue, EBITDA and debt load. If all shares were common shares, the stock price theoretically should be about $3.66 if those shares were fully valued. (Again, please see Valuing Penton, where I compute the value a bit more accurately at -$1.25 per share).

Again, I don't understand how the preferred shares work, and don't have enough invested to spend the time trying to figure this out. And I understand that the calculations I'm making are inherently false, since the stock market will never fully value this company until it can turn a true profit and deliver some measure of P/E ratio. But Penton does seem to be on the right track toward recovery, and may find itself an increasingly attractive merger target for another big b2b media company, or an increasingly attractive private equity play.

But you know how I feel about private equity plays.

And the stock market, viz b2b media companies.

See also my friend Hugo Martin's take on Penton.

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Wednesday, March 22, 2006

Spel Chek 

I use Google's Blogger. And today, I tried out Blogger's spell checker for the first time, in an effort to avoid the little misspellings that seem to crop up in this blog. Among the words the spell checker didn't recognize was "blog."

Just spell checked this post, and it also didn't recognize "Google's," or "Blogger."

I've now 'taught' the spell checker to recognize these words, saving Google (also a word not in Google's spelling database) the effort.

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Steve Cohn: The Editor's Editor 

Last week, my former colleagues at min honored editor Steve Cohn for his 20 years of service to the best newsletter covering consumer magazine publishing. It's the best, quite simply, because of Steve.

In a previous post on media brands, I noted:

min, The Media Industry Newsletter, has been around for 55 years. But its current must-read status is the result of Steve Cohn, its extraordinary editor.

Check out this tribute to Steve. The group of publishing luminaries who weighs in on Steve is truly amazing, as are the congratulatory ads, and the mock covers featuring Steve created by various magazines (an example of which I've lifted for this post.)

If you read the tributes all the way through, there emerges a portrait of what it takes to be a top b2b editor, if not the top b2b editor. Steve's connection to his audience, and their connection to him, should be a model for all of us in b2b media to aspire to.

Imagine how powerful our b2b brands would be if they were all led by editors like Steve Cohn.

Congratulations, Steve, and thanks.

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