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A Time to Earn

New York Post, 03.05.07
Peter Lauria

Lost in the media coverage of private equity firm Ripplewood Holdings' $2.4 billion purchase of Reader's Digest Association was the company's simultaneous purchase of Time-Life, which resulted in a roughly $90 million profit for media mogul Strauss Zelnick's investment firm.

In conjunction with Ripplewood's purchase of Reader's Digest, a consortium of banks, including J.P. Morgan, Merrill Lynch, Citigroup and RBS Greenwich Capital, has syndicated a high-yield bond offering.

According to investors who have seen the bond offering, Reader's Digest is paying $91.8 million for Direct Holdings U.S. Corp., the parent company of book and CD compilation outfit Time-Life.

Almost all of that is pure profit for Zelnick's firm, ZelnickMedia, since the firm was able to acquire Time-Life cash-free from Time Warner in 2003 in exchange for paying a performance-based earn-out and royalties to the media giant.

While neither side would label that deal a favor, taking Time-Life off of Time Warner's hands was entirely the result of a personal friendship between Zelnick and Time Warner CEO Dick Parsons. Zelnick, the former head of 20th Century Fox and BMG Music, received a call from Parsons to gauge his interest in the unit.

At the time, Time Warner was desperate to boost profitability and getting the money-losing division off its books was vitally important.

Under ZelnickMedia, Time-Life, which sells music, DVDs and books, has gone from a loss of $14 million in 2003 to profitability last year on the back of cost cuts and new product launches such as "The Best of Saturday Night Live."

The common denominator in both the Reader's Digest and Time-Life deals is Ripplewood.

The private equity firm has teamed up with ZelnickMedia on a number of deals, including Time-Life and catalog company Lillian Vernon. ZelnickMedia is not part of Ripplewood's Reader's Digest purchase, however, and to avoid the appearance of self-dealing, the sale of Time-Life was negotiated separately from the Reader's Digest acquisition and with a third-party.

For Reader's Digest, purchasing Time-Life will add heft to its already formidable direct marketing operation, which is among the world's largest. The two companies also feature overlapping demographics.