On May 11th, I asked what on earth is wrong with PlanetOut (LGBT). At the time the company was trading at a market cap of $28M.
Barron’s Eric Savitz answered that question, and the future ain’t too rosy:
The company has hired Allen & Co. to consider strategic alternatives; the company is considering selling equity, borrowing more cash or selling all of some of its operations. In a 10-Q filing with the SEC earlier this month, the company disclosed that it promised its primary lender, Orix Venture Finance, to raise at least $15.0 million in new equity or subordinated debt - $7 million by June 30 and the rest by August 31. The company owes Orix $9.7 million; in total it has $16.8 million in borrowings.
In an interview Monday, PlanetOut CFO Dan Miller said the deep slide of the company’s stock - the shares are off more than 31% in the last two trading days - likely reflects sales by 1 or more of the company’s largest shareholders, rather than any specific new developments in its financial situation. It also may reflect the anticipated massive dilution from a capital raise of the size it has promised to seek.
Miller says the company is “moving as quickly as we can” to solve its financial issues.
If it can’t find a way to raise additional funds, he says, PlanetOut “would be forced to approach the lender and work with them on what is best for all parties.” One possibility is that they would trigger a default on the debt.
Yikes!
On the one hand, at $16M market cap, it’s cheap, but the fact is that its cash/debt situation looks bleak, and by buying in as a shareholder, you’ll have debtholders standing in line before you.
While they have hired Allen & Co. to explore its options, I’m not sure what those options are. I did outline a few in my previous post:
You can think of major media companies like CBS, Viacom, NBC Universal, News Corp. (don’t laugh, Mr. Murdoch is after the almighty buck more than anything else, though we don’t see this one happening) and Time Warner seem like natural fits. LGBT has the audience, after all, it just needs a fine-tuning.
In fact, in light of LGBT’s acquisition of a suite of magazines, would it not be a clever way for an old media magazine company to acquire it, generate savings with its own magazine operations, and then leverage LGBT’s online audience to funnel traffic to its magazines’ websites. Think about it, if you look at it this way, a gay reader would also (if they don’t already) read magazines and probably enjoy those magazines’ websites, no?
In that sense, LGBT is an attractive option for new and old media companies who could gain a foothold in the LGBT market and market their “straight” titles to a readership with high disposable incomes and what not. All of a sudden, the options expand to include players like Hearst, Meredith, Conde Nast, etc.
Stay tuned, but for the time being, I’d stay on the sidelines. When debtors are in the queue ahead of investors, things to end up nasty for shareholders.
Subscribe: