Playboy to acquire Spice Entertainment for 2.7 times revenue

Weekly Corporate Growth Report, Feb 16, 1998

The Deal: Playboy Enterprises has agreed to acquire the Spice Entertainment Company, a key rival in the adult television market, in a stock deal worth $95 million. Each Spice shareholder will receive $3.60/share in cash and 0.1524 shares of Playboy Class B stock, subject to a collar designed to provide a minimum value of $2.11 or a maximum value of $2.69 per Spice share. Shareholders of Spice will retain ownership of Spice's digital operations center for video and Internet broadcasts, its options to acquire the outstanding stock of Emerald Media Inc., and certain rights to a library of adult films. On the news, Playboy rose $1.375, or 93%, to $16.1875/share, while Spice Entertainment rose 31.25, or 5.9%, to $5.625/share.

Discussion: Playboy Enterprises' Playboy TV and AdulTVision networks reaches 17.9 million US cable and direct-to-home households and reported revenues of $52.1 million for the twelve months ended September 30,1997. Spice's domestic networks, Spice and Adam & Eve, reached 21.5 million households and generated revenues of $22.0 million for the same time period.

Playboy believes the deal will create an excellent strategic fit since the combination of the two companies will greatly enhance Playboy's fast-growing and high-margin television business. It is expected to increase the company's commitment to "quality programming for adults," and strengthen its relationship with its cable and direct-to-home distributors. Spice Entertainment offers its entertainment services on a pay-per-view basis, while the Playboy Channel is available as a standard cable channel from 10PM to 6AM.