In November, after most Internet stocks had plunged, Primedia agreed to acquire About.com, a Web site offering information on 700 areas of interest. The stock purchase, valued at about US$374 million, worried investors because online advertising was plummeting.
Primedia's losses widened to US$140 million in the quarter ended June 30, from US$7 million a year earlier, though the company said revenues grew 4.7 percent to US$445 million.
The losses were compounded by a series of deals struck with troubled dot.com companies. For example, Primedia swapped advertising inventory in its magazines and Internet sites for stakes in small Internet companies, company reports show. Primedia booked about US$46 million in revenues during the first half of 2001 from this method and reduced cash flow from operations by about US$30 million. Ultimately, those deals proved costly because the equity stakes in the Internet companies plunged in value, forcing Primedia to write down the assets. Those declines contributed to writedowns on investments of US$30 million in the first half.
Primedia made an even more complex deal with About.Com. After it had agreed to a stock swap for the Internet company in November but before the deal was completed, Primedia changed the terms. It agreed to give fewer shares to About.com shareholders and to give About.com US$26 million of advertising inventory. Primedia has said the arrangement let it begin promoting About.com even before the deal closed. The arrangement also allowed Primedia to show higher revenues.
Though such deals are not unusual, "traditionally media companies do it on a small scale," Appert said.
RSS