Reader's Digest sells to Ripplewood

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A U.S. investor group led by Ripplewood Holdings LLC will buy Reader's Digest Association Inc. for $2.4 billion, including the assumption of debt.

The board of directors of Reader's Digest, an iconic publishing and direct marketing company, has approved the merger and recommended to the holders of its common stock that they adopt the merger. The deal ends a 16-year run for Reader's Digest as a publicly traded company.

"If this acquisition is completed, it will return RDA to its roots - as a private company," Eric Schrier, CEO of Reader's Digest, said in a letter to employees dated Nov. 16, the day the news was announced. "Much has been written about going private, and of the advantages for some organizations when time-consuming public disclosure and shorter-term, quarter-to-quarter pressures are alleviated."

Mr. Schrier took over as CEO from Thomas Ryder, who said late last year that he would step down as chief executive but remain chairman through 2006.

"Obviously, this is a momentous step," Mr. Schrier wrote. "But it does not fundamentally change what we are trying to accomplish together. And it does not fundamentally change what kind of company we are, or are striving to be."

It was unclear whether the deal would bring management changes at the Pleasantville, NY, company.

Ripplewood, along with J. Rothschild Group, GoldenTree Asset Management, GSO Capital Partners, Merrill Lynch Capital Corp. and Magnetar Capital, will pay Reader's Digest stockholders $17 in cash for each share of common stock they hold. This represents a premium of about 25 percent over the stock's volume-weighted average price during the past 60 trading days.

Reader's Digest had revenue of $2.4 billion for its fiscal year ended June 30. Its flagship Reader's Digest publication sells in more than 60 countries. The company publishes more than 20 magazines and online properties, including Every Day with Rachael Ray, Allrecipes.com and Taste of Home. It also publishes books including the Select Editions series as well as cooking, do-it-yourself, health, gardening and children's titles. It also markets collections of music, videos and audio books.

These products are marketed through channels including direct mail, display marketing, direct response television, catalogs, retail and the Internet. This year, RDA launched Taste of Home Entertaining, a coast-to-coast home party plan business.

DeWitt Wallace and Canadian-born wife Lila Wallace published the first issue of Reader's Digest on Feb. 5, 1922. They sold the magazine by mail. The magazine first became available on newsstands in 1929. Circulation passed 1 million in 1935. The 1,000th U.S. issue was the August 2005 edition.

Ripplewood, New York, is a private equity firm established in 1995 by Timothy C. Collins. Through five institutional private equity funds managed by Ripplewood, the firm has invested $3 billion in transactions in the United States, Asia, Europe and the Middle East.

Ripplewood's U.S. holdings include WRC Media Inc., a publisher of supplementary educational materials including Weekly Reader magazine, The World Almanac and Book of Facts, Funk & Wagnalls Encyclopedia and The World Almanac for Kids. Its CompassLearning unit delivers research-based assessments, school curriculum and data management.

Ripplewood's portfolio also includes Direct Holdings Worldwide, the parent company to Lillian Vernon Corp. and Time Life, a former Time Inc. property that is a direct marketer of music, books and other products.

Ripplewood said the acquisition would let Reader's Digest enjoy the benefits of a diversified, multichannel publishing platform. The firm plans to develop and strengthen Reader's Digest's brands, content, affinity groups and distribution channels.

The private equity group also assumes Reader's Digest's debt. In its filing with regulators for the quarter ended Sept. 30, the company said long-term debt totaled $776.3 million.

The transaction is to close in the first quarter of calendar year 2007, subject to shareholder approval and other customary conditions.

Reader's Digest has struggled in recent years as its direct marketing and book sales businesses have been challenged by the boom in online book sales from places like Amazon.com. Circulation of its flagship magazine has declined from 12.6 million in 2000 to about 10 million.

In his letter, Mr. Schrier spoke highly of the acquisition.

"I am excited about the possibilities that lie ahead," he wrote. "No question this turn of events represents a great opportunity for the company and its employees. A very experienced and savvy private equity firm has looked hard at our assets and our plans and decided that RDA is the place to invest and that it will grow. This is ultimately the most valuable form of validation because they are backing their belief in us with their money and their reputation."

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