ZelnickMedia-led group Acquires SkyMall

The Daily Deal 12.06.2005

Richard Morgan

 

ZelnickMedia Corp. ended a three-year quest Monday, Dec. 5, by teaming up 

with Spire Capital Partners LP and Spire limited partnership Greenspun Media Group

 to buy SkyMall Inc. in an all-cash deal valued at $52 million.

The three buyers acquired the country's largest in-flight catalog — which reaches 

650 million air passengers a year on 14 U.S. airlines — from its parent of four years, 

Gemstar-TV Guide International Inc. Rich Battista, Gemstar-TV Guide's CEO, 

described Phoenix-based SkyMall as no longer "core to the company's plans."

SkyMall, founded in 1989, offers high-quality products and services from a 

variety of merchants through a catalog that reaches nearly 90% of all U.S. 

airline passengers. It also operates a Web site, SkyMall.com, which contributes

 to total revenues that amounted to $56 million in calendar 2004.

Gemstar-TV Guide put SkyMall up for auction six months ago after 

identifying its TV Guide brand, guidance technology and 

entertainment-and-editorial data and content as core assets. Tapped to manage

the auction, expected to generate a pretax gain of $40 million to $45 million, 

was boutique investment bank Goldsmith Agio Helms & Lynner LLC.

Three years earlier, however, ZelnickMedia approached Gemstar-TV Guide 

and its controlling parent, News Corp., as part of its burgeoning interest in 

direct-marketing assets. ZelnickMedia partner Ben Feder, who along with 

Scott Siegler negotiated the deal for the buyers, had spent five years working 

closely with Gemstar-TV Guide's Battista while at News Corp. in the 1990s.

Strauss Zelnick, the founder of New York-based ZelnickMedia, also did 

time at News Corp. as president and COO of its 20th Century Fox division. 

In addition, Lillian Vernon Corp., the national catalog and online retailer that 

ZelnickMedia took private in 2003, has been a long-time merchant partner of SkyMall.

"This was one reason for ZelnickMedia's familiarity with and interest in SkyMall," 

said ZelnickMedia partner Jim Friedlich, whose firm took control of Time Life Inc., 

once the direct-marketing arm of Time Warner Inc., in December 2003. 

Friedlich also cited SkyMall as "part of a larger ZelnickMedia focus on 

e-commerce and direct-response media." 

In a Form 8-K filed Monday, Gemstar-TV Guide estimated that SkyMall 

produced $7 million in operating income for the year ended Dec. 31, 2004. 

This number, when coupled with full-year revenue figures, suggests takeout 

multiples of 7.4 times trailing operating income and 1.1 times trailing revenues.

Gemstar-TV Guide further reported that its $52 million in proceeds 

were adjusted downward by $9 million to account for working capital. It 

also said it assumed $4 million in SkyMall liabilities but retained $12 

million in cash, cash equivalents and marketable securities belonging 

to the disposed asset.

Sources said that once Gemstar-TV Guide decided to dispose of SkyMall, 

ZelnickMedia picked New York-based Spire Capital as its private-equity partner. 

Spire, in turn, brought Las Vegas-based Greenspun Media aboard.

For legal advice, ZelnickMedia turned to Alan Parnes of Proskauer 

Rose LLP, while Spire retained Paul Gajar at Sonnenschein Nath & Rosenthal 

LLP. Gemstar-TV Guide's interests were represented by News Corp. 

mainstay Hogan & Hartson LLP.