Investor Prods Hungry Minds to Improve Results
Jim Milliot -- 1/8/01

Borders Group is not the only publishing industry company that has a shareholder who feels the company is undervalued. In a 13D filing made to the Securities and Exchange Commission late last month, Marathon Capital Management said it believes Hungry Minds is worth more than its current market value. The statement was made as part of a filing that reported that with the recent purchase of 235,200 shares of Hungry Minds, Marathon now owns a 5.1% stake in the company.

Marathon, run by Peter Gardiner, has proposed that the company immediately hire an investment banker to investigate ways the publisher can enhance shareholder value and suggested alternatives such as a sale of assets, a strategic partnership or recapitalization. A Hungry Minds spokesperson said the company is committed to creating greater shareholder value and that that commitment will continue.

The filing came shortly after Hungry Minds announced that its first quarter results would not meet expectations (News, Jan. 1). In an effort to improve its operating performance, the company said it is looking to reduce operating expenses, although a spokesperson said that no layoffs are planned. Hungry Minds currently has about 700 employees, and it expects to hire additional staff to help expand its Internet activities. In the company's 10-K filing with the SEC, it said it was considering raising book prices to meet higher operating costs, and the company spokesperson said Hungry Minds has begun to increase prices on selected titles.

The filing also noted that in August--when the company was known as IDG Books--it paid $5 million to acquire the online learning company Hungry Minds Inc.; IDG adopted the Hungry Minds name in November. Also during fiscal 2000 the company received approximately $18 million for the sale of its Arco, J.K. Lasser and Chek-Chart businesses. In a final note from the 10-K, Hungry Minds reported that Barnes & Noble was its largest customer last year, acquiring $40.7 million worth of products, while sales to Borders were $33.3 million. The two chains accounted for about 30% of Hungry Minds' total sales.

In a more recent development, Hungry Minds signed a two-year publishing deal last week with the software company Red Hat. Under the agreement, Hungry Minds will publish books for the Red Hat product line and will also provide continuous electronic content for Red Hat's own online knowledge base. Five titles are planned for release in the first year of the agreement under the Red Hat Press imprint, while six are scheduled for 2002. Hungry Minds hopes to have the first books completed by summer.