Lillian Vernon Acquisition Puts Media Firm in Charge

Lillian Vernon Corp. announced yesterday its acquisition by Ripplewood Holdings LLC for $60 million.

The deal calls for Ripplewood to pay $7.25 per share, which is 73 percent above the $4.20 closing price of the company's common stock April 15. The deal is valued at $60 million.

ZelnickMedia will have a minority interest and handle daily management of the 52-year-old cataloger. Strauss Zelnick, founder of ZelnickMedia, will become chairman of Lillian Vernon Corp.

Lillian Vernon Corp., Rye, NY, simultaneously entered into a consulting agreement with ZelnickMedia to run through the close of the deal, which is expected by July 31.

Lillian Vernon, the founder and board chairman, is expected to own 5 percent of the acquired company and will continue to serve as non-executive chairwoman and spokeswoman.

She also will stay active in merchandising, go on buying trips and design the catalogs, Zelnick said, along with “anything else that interests her.” She also is expected to increase her public profile as an ambassador for the company, possibly through a syndicated column and television appearances with a focus on home shopping.

Vernon owns 26.1 percent of the stock while her son and company spokesperson David Hochberg owns 14 percent of the company. Hochberg, a 25-year veteran of the company, will continue in his current role. He is not to retain an ownership share.

The deal was approved by Lillian Vernon's board of directors and is subject to approval by the company's shareholders. Commitment letters have been obtained regarding all necessary financing involving the transaction.

ZelnickMedia owns interests in, advises and manages media enterprises in recorded music, magazine publishing, CD manufacturing, online games and media-related software. ZelnickMedia has worked with Ripplewood on investment opportunities since Zelnick founded the firm two years ago.

Zelnick, who will have an office in Rye along with his current location in New York, has definite ideas for the company.

“We're media guys, and we see direct marketing as a media business,” he said. “I'm not a retailer, and I'm not a merchant. I'm a direct marketing guy. This is a company that may have lost its way [in terms of] not being as expert as it could be in direct marketing. If we could retain its merchandising skill set, we should hit a home run. We aim to address all areas of the business in cooperation with the management team.

“I love the business. You apply math to art. That reflects our goal in the turnaround.”

Specifically, he said the new ownership would work to improve Lillian Vernon's modeling, testing and CRM, including upgrading the software and doing more upselling for online and phone orders.

Zelnick's background includes running BMG Direct, a direct marketer of recorded music, and 20th Century Fox's film business, both of which he described as turnaround successes.

“When I joined BMG, it was No. 5 out of six record companies,” he said. “When I left, it was No. 2 out of five. I was there from 1994 through 2000.

“A turnaround requires being aggressive and being patient,” he said. “We're not going to tear the joint up. There is so much that is great. We want to return the company to profitability and grow from that base. Returning it to profitability may take a year.”

Lillian Vernon has posted a net loss in its previous four quarters.

When asked about staff changes, he said there are “none contemplated right now. I'm sure there will be some over time. I have to figure it out.”

Bear, Stearns & Co. Inc. was the adviser to Ripplewood and ZelnickMedia. Goldman, Sachs & Co. acted as financial adviser to Lillian Vernon Corp.

Lillian Vernon and its subsidiaries publish seven catalog titles: Lillian Vernon, Lilly's Kids, Christmas Memories, Favorites, Personalized Gifts, Sales and Bargains and Rue de France. It also sells its products in the business-to-business market and through retail outlet stores.

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