Reader's Digest to Acquire Reiman Publications

In a move to reinvigorate Reader's Digest's core magazine and Books and Home Entertainment businesses, the slumbering giant has reached an agreement to acquire Reiman Publications for $760 million, the largest purchase in RD's history. Reiman, based in Greendale, Wis., is a publisher of cooking, gardening, country living and nostalgia magazines and books. Its 12 bimonthly magazines have an aggregate circulation of 16 million subscribers, and the company publishes six or seven books yearly in a mix of annual titles and one-shots. Reiman will contribute more than $300 million in revenues and over $70 million in EBITDA to RD.

In addition to its content and cash, Reiman brings to RD a 32-million-customer database, which includes 19 million customers who are not in the RD database. While Reiman sells the majority of its products through direct mail, it does not rely on sweepstakes promotion, and RD has been searching for ways to lessen its dependence on sweepstakes ever since new guidelines were introduced about two years ago. RD chairman Tom Ryder said that in addition to Reiman and RD cross-promoting each other's publications, RD will repurpose Reiman's content for use in books that can be sold through the company's retail, catalogue and Books Are Fun channels. Ryder is confident the cross-promotions will be successful, observing that Reiman and RD customers "share similar demographics and values."

Reiman's book operation is currently centered on developing titles based on the content from the magazines that are sold on a continuity basis to customers. "We're intrigued by their annual continuity program. It's something we might do more of," RD spokesperson Bill Adler said. RD is one of the few remaining publishers interested in continuity book programs. Reiman's perennial bestseller is Taste of Home, a cookbook that features recipes culled from the Taste of Home magazine, which has a circulation of 4.6 million. The book sells about 1.5 million copies annually, mostly through direct mail. Books are also sold through Reiman's Web site and "a few" are available through bookstores, said Mike Kuzma, v-p of marketing for books. Kuzma said trade distribution is limited because the company "feels an obligation to our [direct mail] customers to maintain the price integrity of the books." For that same reason, books are not offered through other online bookstores. The formula appears to work: book sales increased from $30 million in 1998 to $68 million last year.

The deal is not without its critics. Several large shareholders would prefer that the company use its resources to fix existing operations or buy back stock. Bond rating agencies have also expressed concerns about the merger, noting the higher debt load and integration challenges the company will be assuming with the purchase.