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Zelnick Takes Alloy Private—The Deal

Thomas Zadvydas

Alloy Inc. is going private.

The New York youth-targeted media and marketing company announced Thursday, June 24, that it has agreed to be acquired by New York buyout shop ZelnickMedia Corp. for $9.80 a share, or $126.5 million.

Alloy is the originator of the teen television and book series "The Vampire Diaries" and "Gossip Girl."

"We were able to secure a nice premium on the stock. We felt it gave shareholders a great return on their shares," said Alloy co-founder and CEO Matt Diamond, who will retain his post after the buyout.

The deal, expected to close in the fourth quarter and subject to antitrust clearance and Alloy stockholder approval, gives Alloy a 14% premium to Wednesday's closing price.

Bank of America Merrill Lynch, RBS Citizens NA and the PrivateBank are providing an undisclosed amount of debt for the transaction.

Natixis Caspian Private Equity, Rosemont Solebury Capital Management LP and GenSpring Family Offices LLC, a wealth management firm, will be co-investors with Zelnick on the deal.

Zelnick is investing in Alloy from its ZM Capital LP fund, which closed in May 2008 at just under $150 million. The Alloy buyout is the third deal from the fund.

Two prior transactions include a $530 million take-private of Chelmsford, Mass., telecom networking infrastructure company Airvana Inc. in December and the purchase of informercial media services business Canella Response Television LLC.

Zelnick's partners on the Airvana deal included hedge fund S.A.C. Private Capital Group LLC; Blackstone Group LP's private equity and hedge fund, GSO Capital Partners LP; and Sankaty Advisors LLC, the credit affiliate of Bain Capital LLC. Zelnick typically operates as part of an investor consortium when it makes acquisitions.

Alloy independent director Peter Graham said in a statement Thursday that the target decided on a deal with Zelnick after "a full market process."

"There will be more details in a proxy in a few weeks," Diamond said.

"Zelnick has a number of relationships with various sources of capital and a history of partnering in the transactions that we've done," added Zelnick partner Andrew Vogel, who also said the ownership structure and financing would be detailed in the forthcoming proxy.

Diamond and co-founder Jim Johnson will continue to run the target as CEO and COO, respectively, while Geraldine Laybourne, the former CEO of Viacom Inc.'s Nickelodeon and a co-founder of the Oxygen Network, will serve as Alloy's chairwoman.

"Our plans are just to continue to support the management team of Alloy with their strategic vision of the business — focus on the Millennial audience," said Jordan Turkewitz, a second Zelnick partner involved in the deal. He and Vogel will be managing the investment along with Seymour Sammell.

Diamond and Johnson, and other Alloy shareholders who hold 25% of the target, have agreed to vote in favor of the deal.

In the three months ending April 30, Alloy reported sales of $49.3 million, compared to sales of $42.9 million for the same period a year earlier, a 14.9% increase. Its losses narrowed 22.2%, from $2.7 million to $2.1 million, over the same period.

David Baron and Brian Pope at Macquarie Capital Advisors are advising Alloy, while partners Richard H. Gilden and Eric M. Lerner at Kramer Levin Naftalis & Frankel LLP are legal counsel. Dan Clivner, Nathan Agam, Jon Farkas, Brian Price and Steven Sutton at Simpson
Thacher & Bartlett LLP lead the legal team for the investor group, which did not use a financial adviser. Partner Raymond Gietz at Weil, Gotshal & Manges LLP was counsel to Macquarie Capital.

Alloy has a market capitalization of $123 million. Shares were up 92 cents, or 10.7%, to $9.51, at Thursday's close.