News Corp. to buy Heritage Media for stake in growing coupon industry

Weekly Corporate Growth Report, Mar 31, 1997

News Corp. has agreed to buy Heritage Media for $1.35 billion, or $20.50/share, in stock and assumed debt. News Corp. will issue American depository receipts valued at $754 million to pay for Heritage's 38.6 million shares. It will also assume Heritage's $600 million debt.

Heritage owns six network-affiliated television stations and 24 radio stations. However, Heritage plans to sell those for $500 million because its Fox television network is already at Federal station-ownership limits and the company has no interest in entering the radio business. This would bring the net purchase price of the transaction to $850 million. The price to sales ratio would then be 1.29 and the price to profit ratio would be 34.0.

Instead, the main appeal of Heritage lies in its two nonbroadcast operations: Actmedia, one of the country's largest providers of on-shelf coupon dispensers to supermarkets and drugstores, and Dimac, a direct-mail marketing and consumer research company. Together, the two companies had operating profits of $70.1 million, or 13.4%, on revenue of $521.1 million in 1996.

Actmedia is the leader in the growing instantcoupon machine market by serving 11,500 stores around the country. News Corp. recently started installing its own instant coupon machines, but so far they are only in 2,600 stores. In the past decade, in-store marketing has grown tenfold to become a $1 billion market. It is fueled by research that showing that more and more customers are making their decisions about which brands to buy while they are in the store.

The News Corp. will also benefit by owning Dimac because direct mail is the fastest growing part of the advertising market. The company also conducts specialized research, telemarketing, media buying and fulfillment for the financial services, healthcare, and retail industries.