One media maven on the upside of downside

Meredith Corp.'s John Zieser has had his eye on Shape magazine for some time. The women's fitness publication would complement Meredith's existing titles like Better Homes and Gardens and Fitness, and would deepen the company's reach with younger women.

What's more, while Shape itself is relatively hale, it's owned by a company that isn't: American Media Inc., parent of the National Enquirer, Star magazine and a stable of other fitness titles. AMI only narrowly avoided bankruptcy in early February through a debt exchange that resulted in bondholders owning 95% of the company.

So is Shape an ideal target for a financially fit strategic looking to take advantage of the downturn? If only.

-- See related story: Distressed deals: Here come the strategics --

"Shape is embedded inside a very complicated debt structure and asset mix," laments Zieser, chief development officer for Meredith, which also owns television stations and digital marketing and consumer Web sites. "It would be difficult to extract that property, even if the stars were to align."

Such are the complexities corporate dealmakers confront as they try to take advantage of an M&A market full of distressed assets.

With little debt and a well-developed acquisition strategy, Meredith, for one, is in a position to buy. And in media, there's plenty of distress to go around. Dozens of publishers and broadcasters filed for bankruptcy in 2008, including Sam Zell's Tribune Co. and television operators Johnson Broadcasting Inc. and Fireweed Communications Corp.

Yet Zieser says it will not be easy for strategics in his sector to scoop up any distressed assets. The fundamental problem, he explains, is the double whammy of tight credit and dwindling advertising revenue.

"The challenge is purchasing the asset at a low enough price that you can make it accretive," says Zieser. "And in light of the fact that you're going to have a higher interest rate or internal rate cost, it's very difficult to get those acquisitions to work unless you can generate significant synergies. And that's even more difficult if the primary revenue of the business is advertising."

Zieser is still looking, though, and also considering creative deal structures that could make a distressed deal more palatable for Meredith. He has met with private equity firms interested in partnering on distressed transactions.

In one scenario, says Zieser, the buyout firm would take a debt position in the target. Meredith would put up equity to get control of an asset it deemed attractive -- but with an important condition. "We would have to be assured that the funds we deployed would not be subject to a bankruptcy process. The asset that we are interested in would be made a separate entity and insulated from bankruptcy, should that occur."

None of the assets on Zieser's watch list are distressed, but that could change. And Zieser would also take a hard look at what he calls "one-off deals," where, say, the assets of a bankrupt television station in a market adjacent to a Meredith-owned property became available. "The last thing you want to do in this environment is hide under the table and hope the clouds will pass," he says.