Reader's Digest Is Sold For $1.6 Billion

Reader's Digest Association Inc. agreed to be acquired by an investor group for $1.6 billion in cash, taking the magazine publisher into private hands.

Ripplewood Holdings LLC, a private equity firm, said early Thursday it would pay $17 a share for each Reader's Digest share, representing a 9.6% premium to its Wednesday closing price of $15.51. It recently changed hands at $16.58, up 7%, or $1.07.

Including Reader's Digest's debt, the total value of the deal comes to $2.4 billion. The company said its board has approved the agreement, and expects the deal to close in the first quarter. The transaction is subject to the funding of the investor group's committed financing and the approval of the company's shareholders, as well as antitrust clearance.

In the fiscal year ended June 30, the company generated revenue of $2.39 billion, or roughly flat with a year ago. Its loss widened 29% to $117.4 million from $90.9 million. The company had forecast full-year revenue rising in the mid-single digits and earnings of 88 cents to 98 cents a share. While the offer price exceeds the company's 52-week high of $16.30, set in January, it falls short of its two-year high of $18, set in April 2005.

The chairman of Omega Advisors, Leon Cooperman, said he would have liked the offer to be "somewhat higher," but added that he trusted the company's management and system in finding the best offer. He said he was reserving judgment on the deal until more details are released."I have to get the specifics of process like how broadly it has been shown," he said."In a few months, we'll find out if it's the best price or not."

Omega Advisors owns more than 4 million shares of Reader's Digest as of September 30. Clifton Robbins, chief executive of hedge fund Blue Harbour Group, similarly saw the move as a positive. "Blue Harbour believed that the company's shares were undervalued in the market and recommended that Reader's Digest consider a going-private transaction," he said in a statement. "We applaud Reader's Digest's Board on the transaction announced today."