One can appreciate Hugh Hefner's desire to take Playboy Enterprises Inc. private. As a magazine consultant puts it, "He wants to maintain the lifestyle that you wish you had."

But what about Hef's would-be partner? How can private equity firm Rizvi Traverse Management LLC justify its interest in a dead-tree-dominated enterprise freighted with Rat Pack sensibilities, circa 1963?

The answer isn't Playboy's pictures. It isn't the articles, either. No, to understand what's really motivating Rizvi Traverse, please consult the fine print of Playboy's most recent 10-K.

Therein one learns the publishing house that Hef built is carrying federal net operating losses, or NOLs, of nearly $160 million. The company also has state and local NOLs of nearly $140 million, not to mention foreign tax credit carryforwards of nearly $20 million.

Let's not allow the nonfederal items to complicate our back-of-the-envelope analysis. Let's just focus on Playboy's federal NOL carryforwards to see if Hef's new partner has reason to be beaming like a Playmate of the Year.

Turns out that it does: Playboy's federal NOL carryforwards almost match the $185 million market cap indicated by the $5.50 per share take-private proposal that Hefner recently presented to his board. Moreover, of that $185 million, a little more than $62 million is attributable to Hefner's personal holdings in the company's two classes of stock.

This suggests Rizvi Traverse would have to put up only $123 million to bring in all non-Hefner equity interests. Doing so should give the private equity partner a 66.3% stake in a privately held Playboy, while Hefner's economic interest would remain unchanged at 33.7%.

The problem is that the transaction would also constitute an ownership change. And this would jeopardize the very NOLs that promise to make Rizvi Traverse's hopping into the Bunny business such a profitable foray.

An ownership change, as defined by the Internal Revenue Service, occurs when "one or more of the loss corporation's 5% shareholders increase their interest in the loss corporation by more than 50 percentage points." So, rather than risk nearly $160 million in federal NOL carryforwards, Rizvi Traverse could take Playboy private not in one fell swoop, but in two measured steps.

In step one, according to Robert Willens, of the tax analysis firm that bears his name, Rizvi Traverse and Hefner would ratchet their combined ownership interest up to 83.7%.

This would leave a stub of 16.3%, which would stay in public hands so that Hefner's new partner could exploit the NOL carryforwards to which it would then be entitled.

Step two would be to retire the public stub when appropriate. The IRS considers "appropriate" to be at least three years after one or more shareholders boosted their original interest in the company by a maximum of 50 percentage points.

By then, of course, the tax sheltering could be well under way. All Rizvi Traverse would have to do is contribute the equity of profitable companies in its portfolio to the entity it sets up with Hefner. In his letter to the board apprising it of his proposal, Playboy's founder actually makes reference to "the new entity I and Rizvi Traverse propose to form to complete the acquisition ('NewCo')."

It's worth noting that NewCo could put assets to work that would otherwise waste away. As Playboy itself admits in a regulatory filing that preceded Hefner's floating a take-private proposal, "We believe that it is more likely than not that we will not be able to use the NOL carryforwards before they expire."

That all changes, however, depending on how much in offsetting profits Rizvi Traverse can muster from such portfolio companies as Clear Scope Partners, International Creative Management Inc., Key Air LLC and Keystone Aviation LLC, Newbridge Film Capital, Summit Entertainment LLC and Ziegler Capital Management LLC.

"They might even create a whole new entertainment empire," Willens says, after contemplating the media and entertainment assets available for Rizvi Traverse to place in a Playboy-containing NewCo. But even a NewCo of eclectic interests would still win the day -- especially if Playboy's non-Hefner equity can be had, as proposed, for $123 million.

This take-out price could ultimately result in a negative net price for Rizvi Traverse's Playboy investment, provided the private equity firm also succeeds in exploiting the nearly $160 million in federal NOL carryforwards that Hefner's proposed NewCo seems likely to bring its way. It's called, technically, pulling a rabbit out of the hat.

For more, see the archives of his Backstory columns

Richard Morgan covers media for The Deal.