Why Time, Inc. Shares Popped Today

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What happened

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Shares of Time, Inc. (NYSE: TIME) have popped today, up by 9% as of 11:15 a.m. EST, following the company's announcement that it would be acquired by Meredith Corporation (NYSE: MDP). The deal had been rumored to be in the works earlier this month.

So what

Meredith will acquire Time for $18.50 per share through an all-cash tender offer, representing a 46% premium compared to the closing price on Nov. 15, 2017, before the deal started leaking to the media and driving up Time's stock price. The total transaction is valued at $2.8 billion, including Meredith assuming Time's debt and net of cash. The boards of both companies have unanimously approved the deal, which is expected to close in Q1 2018.

In line with earlier rumors, the Koch brothers are helping finance the deal. Meredith has secured $650 million through a preferred equity commitment from Koch Equity Development, but Meredith says that Koch Equity Development will have "no influence on Meredith's editorial or managerial operations."

Now what

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The deal represents a consolidation of two of the largest magazine publishers, which generated a combined $2.8 billion in revenue in 2016. The new company will have a readership of 135 million, including paid circulation of 60 million. It will also bolster Meredith's digital position and ongoing push into video advertising.

Meredith estimates that it can generate cost synergies of $400 million to $500 million within the first two full years of operation, which will inevitably translate into layoffs. The transaction should be accretive to free cash flow in the first full year of operation, and Meredith intends on aggressively paying down debt to strengthen its balance sheet. The company says it remains committed to capital returns and annual dividend increases.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.