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Not all ears

20 July 2010 By BVJournalist

The Playboy Mansion could be where the action is on any deal for the nudie magazine empire. After years of fun pairing Playmates with Hollywood’s B-list, Hugh Hefner’s sprawling Los Angeles home now warrants serious consideration. It looks to be among Playboy’s hidden assets.
The octogenarian’s interest in taking Playboy private already has some stiff competition. The owner of Penthouse, FriendFinder Networks, has put forward a valuation of $210 million, or $25 million more than Hef’s. Once any bid is officially submitted, Playboy’s independent directors would need to push for the best price for non-Hefner holders who own about two-thirds of the company but have only minority voting rights.

The mansion looks like Exhibit A in this exercise. The 29-room, 20,000-square-foot house on five-plus acres is valued on Playboy’s books at $1.2 million. Something like $25 million sounds like a more reasonable starting figure based on other listings in the neighborhood, and it could be worth closer to $50 million. That gap alone accounts for the difference between Hefner’s proposal and FriendFinder’s.

The rival soft-porn peddler is putting on the pressure. FriendFinder contends Playboy generates enough cash to let Hefner keep the mansion, which costs $3 million a year to run, and still support deal-related debt. The right to sell the house would be insurance in case a post-acquisition Playboy runs into trouble.

Playboy has still more that hasn’t gotten the same exposure as its centerfold models. The company has a 5,000-piece art collection, including photographs by Helmut Newton, valued at zero on the balance sheet. The magazine’s 50-year archives with its accompanying 12 million photos have been fully depreciated too, and could find value at auction or in a sale.

History also suggests any bid may need to be higher, even if the market isn’t so sure. Playboy shares are trading a few cents below Hef’s tentative $5.50 apiece proposal. But shareholder lawsuits can sometimes be a catalyst. They helped spur controlling Dolan family members to sweeten their bid several times when they tried to take Cablevision private in 2007, before other owners ultimately voted down the plan. Delaware courts also have socked buyers with hefty penalties to punish underpayment.

It’s all enough to insinuate that when it comes to buying Playboy, Hefner hasn’t yet bared all.


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