Reader's Digest Association, the venerable staple of doctors' waiting rooms and middle-class bedside tables, yesterday announced plans for voluntary bankruptcy as it became the latest victim of the advertising recession.
Equity investors, led by Ripplewood Holdings, who announced the $2.4bn acquisition in November 2006, will lose their entire $600m investment.
The pre-packaged Chapter 11 filing, agreed with senior lenders but contingent on agreement with other lenders, marks the latest media industry deal struck at the peak of the credit-fuelled buy-out market to head towards the bankruptcy courts.
Reader's Digest, launched by a husband and wife in New York in 1921 from one room under a Greenwich Village speakeasy, began as a mail-order collection of condensed articles from other magazines and evolved into a direct-mail pioneer and one of the world's largest publishers.
Nine of its 94 magazines have a circulation of more than 1m in the US alone, and its titles claim a combined global readership of 130m people in 78 countries.
But the group has been hit hard by changing reading habits and an advertising recession.
Advertising revenue from the flagship magazine fell 18.4 per cent last year, and is down another 7.2 per cent in the first six months of this year, according to the Publishers Information Bureau .
"The deal was done at the height of the frothy investment banking model, and the company was saddled with $2.2bn worth of debt," said Tom Williams, chief financial officer. Group revenues are down just 2 per cent this year, said Mary Berner, chief executive.
However, as cash flows came in below the Ripplewood-led buy-out group's expectations, it found itself struggling to make a $27m interest payment, due yesterday.
Ms Berner said the restructuring would not affect its operations or suppliers. "This is a balance sheet issue and not an operational issue," she said.
Source : Financial Times
[tags : recession bankrupt collapse retrenchment financial news collapse stagnation economic slowdown financial collapse world recession global recession layoff job cut]
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